Preamble

The House met at half-past Two o'clock

PRAYERS

[MADAM SPEAKER in the Chair]

Oral Answers to Questions — AGRICULTURE, FISHERIES AND FOOD

The Minister was asked—

Common Agricultural Policy

Mr. Paterson: What percentage reduction in the EU agriculture budget he will be seeking in discussions in the Council of Ministers on CAP reform. [22301]

The Minister of Agriculture, Fisheries and Food (Dr. John Cunningham): I shall be seeking CAP reforms that deliver lower prices to consumers in the short term and savings to taxpayers in due course.

Mr. Paterson: Ten days ago I addressed 4,000 angry, upset farmers in Oswestry. Numerous farmers from the crowd said that they wanted not subsidies or regulation, but to sell their quality product in fair and free conditions. If CAP reform is a priority of the Government, why did the Prime Minister not mention it in his speech of welcome to the President of the Commission on 8 January?

Dr. Cunningham: The briefing material associated with the meeting with the Commission on that date certainly reiterated the Government's commitment to CAP reform, as has my right hon. Friend the Foreign Secretary both in his speeches in Europe and in a recent interview published in Le Monde. I reiterated the Government's commitment in my first address to the Agriculture Council in Brussels on Tuesday.

Mr. Godman: Does my right hon. Friend agree that what is badly and urgently needed is the comprehensive reform of both the common agricultural policy and the common fisheries policy, and that without such reform there can be no enlargement of the Union?

Dr. Cunningham: I agree that we need to look for both those reforms. It is pleasing and encouraging that CAP reform is now very much on the agenda and I expect to see detailed proposals from Commissioner Fischler some time in March. We are scheduled to have reform of the common fisheries policy by 2002.

Sir Michael Spicer: The Minister did not answer the original question at all, but if one assumes that implicit in what he said was the idea of lower subsidies, does he

agree with the National Farmers Union that with that should go a closer comparison between world prices and the prices charged for our agricultural products?

Dr. Cunningham: Yes. I am pleased to say that I agree with that important point. The whole thrust of reform of the CAP should be to dismantle production controls, which inhibit many of our farmers, to move towards world market prices and to decouple from production the transitional support for that change.

Mr. Andrew George: What approach does the Minister take in the debate about modulation in the reform of the common agricultural policy? That will be crucial for the future, especially for small farms, and it is essential that he retain an open mind on the subject.

Dr. Cunningham: I have made my position on modulation abundantly clear. I am opposed to it or to any proposal managed and controlled from Brussels that would be detrimental to efficient farming interests in this country.

Farm Incomes

Mr. Yeo: When he last met the president of the National Farmers Union to discuss the recent fall in farm incomes. [22303]

The Minister of State, Ministry of Agriculture, Fisheries and Food (Mr. Jeff Rooker): My right hon. Friend last met the president of the NFU to discuss incomes in December last. Along with many right hon. and hon. Members, I also had discussions with farmers on Tuesday.

Mr. Yeo: Is the Minister aware that farmers in South Suffolk are experiencing a drop in their incomes partly as a result of Government policy, including the high level of sterling that has been caused by five interest rate increases during the past nine months? What discussions has he had with the Treasury about using the underspend on agricultural schemes that we will receive as part of our European Union budget rebate to help farmers cope with the effects of declining incomes?

Mr. Rooker: Other industries are also affected by the increase in the price of sterling. Agriculture is not alone, although in special recognition of that problem my right hon. Friend announced in the House on 22 December substantial extra help to the farming industry.

Dr. Ladyman: At the farm income lobby on Tuesday, one of the points made to me was that our pig farmers are forbidden from feeding meat and bone meal to pigs, yet meat raised in that way is freely available on our supermarket shelves. What plans does the Minister have to restrict imports of meat produced in that way?

Mr. Rooker: We have no plans to restrict such imports. We are subject to the restrictions of the ban imposed on meat, bone meal and other products because of the mismanagement of the bovine spongiform encephalopathy crisis by the previous Government. The


consequences of that are being felt by farmers and the whole of the food production industry today and that will remain the case for some time to come.

Mr. Paice: The Minister knows that on Tuesday the president of the National Farmers Union and others presented a petition with 650,000 signatures from people who want to keep Britain farming. He knows full well that it is not merely a question of sterling and that in fact the Government have taken £129 million away from farmers and given back only £85 million. Why will he not now answer the question my hon. Friend the Member for South Suffolk (Mr. Yeo) asked? Will he undertake to the House that any underspend in the sheep premium, in set-aside, or in any other European programme will be used as part of our refund to access more money to help Britain's farmers?

Mr. Rooker: First, let us get the record right. The figures that the hon. Member quoted are correct, but they are for two different years. The increases he mentioned are for the next financial year and the assistance to farmers will be paid in this financial year. We do not make a move on those finances without the agreement of our colleagues in the Treasury. On the so-called underspends, what he suggests has never happened in the past and I do not see it happening in the future.

Mr. Blizzard: The main problem facing farmers is the large variation in the exchange rate of our currency and its effect on the green pound. Does my hon. Friend agree that if Conservative Members were really concerned about the countryside and were really the farmer's friend, they would take a far more positive attitude to the single European currency—which is favoured by the NFU—instead of their ridiculous policy of not going anywhere near it for 10 years and leaving farmers to suffer from sharp variations in exchange rates?

Mr. Rooker: The answer to that excellent question is yes.

Sir Peter Tapsell: Does the Minister recognise that, as sterling is likely to remain strong against the European currencies until the single European currency has been seen to fail and is abandoned, we are not dealing with a short-term problem? For the foreseeable future—for some years to come—British agriculture will be unfairly and exceptionally adversely affected by the present green pound arrangements. Are the Government seriously considering some way to help farmers over that period? If the green pound is left as it is at present, it will destroy British agriculture in the next three years.

Mr. Rooker: I bow to the hon. Gentleman's superior knowledge of the banking system. His confidence that the European monetary system will fail will not be shared by many people. He may be able to look into the future with such certainty, but we cannot. The issue will be with us for some time, as he said. Not only the farming and agriculture industry, but the whole of British industry, will be affected.

Beef Industry

Mr. Edwards: If he will make a statement about the problems facing beef farmers. [22305]

Mr. Hanson: If he will make a statement on his Department's current support for the British beef industry. [22309]

Dr. John Cunningham: I am well aware of the problems of the British beef industry and I set out proposals to the House on 22 December for a special aid package, worth £85 million, for livestock producers. I have no current plans to make further aid available.

Mr. Edwards: I am grateful to my right hon. Friend for the measures that he has already announced. Does he agree that the farmers from Monmouthshire who came to the House on Tuesday made a strong case for clear and honest labelling of meat and meat products in British supermarkets, stringent controls on the import of substandard beef and a review of the tendering process so that public bodies can be encouraged to buy British beef?

Dr. Cunningham: Yes. All those measures are under consideration.

Mr. Hanson: What progress has been made on lifting the ban in Europe, given the welcome news about the potential for allowing Northern Ireland to export beef? I re-emphasise the point made by my hon. Friend the Member for Monmouth (Mr. Edwards), that many purchases are made by public bodies such as hospitals and schools and, indeed, Government Departments. What steps can my right hon. Friend take to encourage them to purchase British beef?

Dr. Cunningham: It was excellent news when the Commission in Brussels gave an emphatic yes to the export certified herds scheme last week. Yesterday, the Standing Veterinary Committee acted swiftly to follow that up by setting up a working party that I understand will meet again in Brussels next week. I hope that it will reach a positive decision.
Public bodies are bound by rules and guidelines that require them to get the best possible value for money when purchasing food. I have already had informal discussions with my right hon. Friend the Secretary of State for Defence about purchases by the Ministry of Defence.

Mr. Hayes: Will the Minister acknowledge that his decision to charge a flat-rate licence fee to fund the Food Standards Agency is attracting widespread criticism, including from Chris Haskins, the head of the Government task force? He also criticised Ministers for a tendency to overreact; the ban for being unscientific; and the whole regulatory framework, saying that people misjudged the matter if they thought that increased regulation would increase food safety.

Dr. Cunningham: I am not sure what the hon. Gentleman's question was, but I have read some of the reports. The hon. Gentleman's first point was completely misplaced, because we have made no decision to have a


flat-rate licence fee for retail outlets or anyone else. We simply gave an illustrative example when we published the White Paper.
Regarding the comments of my good friend Christopher Haskins, I can understand that, since he was appointed by the Government to ensure that we have better regulation, he should be concerned about the abysmal regulations that we inherited from the previous Administration.

Mr. Kirkwood: Does the Minister agree that one of the most urgent and difficult cost increases that beef producers face immediately is the cost of disposal of fallen stock? Will he consider a small transitional fund so that the industry can get itself sorted out in the immediate aftermath of the withdrawal of the subsidy scheme and so that we can guarantee that high-risk and fallen stock material does not illegally find its way back into the human food chain? Can it possibly be in anyone's interest for the Minister to knacker the knackers' yards?

Dr. Cunningham: Temporary provision—transitional support—was made for the rendering industry. No further provision is available for it. The object of the support for the rendering industry, which was decided by the previous Administration, was to avoid problems in the meat chain in the immediate aftermath of the BSE crisis. We have no proposals for any temporary fund for the industry. The conditions of last year that gave rise to the problems no longer exist.
If people were to dispose of fallen stock in the way the hon. Gentleman suggests, they would be committing a very serious offence.

Mr. McGrady: The Minister is aware of the enormous, disproportionate impact of the BSE crisis on beef farming in Northern Ireland. In those circumstances, why has there been undue delay in the release of the agricultural monetary compensation fund? Will he look into the matter and take action to release that fund so that farming incomes may be properly upwardly adjusted?

Dr. Cunningham: I am somewhat surprised by that question. Farmers in Northern Ireland, just like those elsewhere in the United Kingdom, will qualify for their share of the £85 million package that I announced on 22 December.

Mrs. Spelman: A group of beef farmers from my constituency who attended the rally on Tuesday were bitterly disappointed and surprised to find that, when the audience was asked whether a Labour Member of Parliament was present in Westminster Hall, no one put up their hand. Is that indicative of the Government's position on the beef industry?

Dr. Cunningham: That of course depends on who the farmers invited—does it not?

Mr. Jack: Even the right hon. Gentleman could have gone.

Dr. Cunningham: The right hon. Gentleman is a little behind the news. I spent Monday and Tuesday in the

Agriculture Council in Brussels. I chaired my first Agriculture Council meeting on Tuesday and returned to London at 8 pm on Tuesday.

Mr. Sheerman: Is my right hon. Friend aware that I was at the meeting at which, supposedly, no Labour Member was present? May I inform him that the beef farmers and other farmers who came to see me that day wanted most to talk about the way in which the previous Government, for 18 years, failed to come through with policies that helped small and medium farming enterprises? The policy that this Government will institute will create a healthy living for such farmers.

Dr. Cunningham: I am pleased to say that I agree with my hon. Friend's comments.

Mr. Jack: I can understand, after that exchange, why the hon. Member for Huddersfield (Mr. Sheerman) did not put his hand up in Westminster Hall.
The Minister will be aware that consumers and farmers have put much faith in his assurances that proper checks are being made on beef that is coming into the United Kingdom. Pursuant to the Minister of State's written answer on 20 January, how does the right hon. Gentleman know that all the checks are effective? The Minister of State told the hon. Member for North Tayside (Mr. Swinney) that his Ministry was unable to say how many checks are carried out. Will the right hon. Gentleman undertake to answer from the Dispatch Box the question that I tabled yesterday, in which I requested a complete breakdown of just what has been found as a result of the surveillance exercise?

Dr. Cunningham: I shall answer all the right hon. Gentleman's questions in due course. We have the right to inspect each consignment of imports from third countries if we think it necessary. On EU imports, the right hon. Gentleman should know—whether he does is another matter—that, due to requirements and obligations under the single market, we can make only sample checks. That is done, and we check all the paperwork available to us.

Animal Welfare

Mr. Canavan: What steps his Department is taking to improve animal welfare. [22306]

The Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. Elliot Morley): We have taken a number of steps to improve animal welfare. Shortly after the general election we put in place new rules on transport and achieved European Union agreement to a legally binding protocol that recognises that animals are sentient beings. This last will provide an important basis from which to seek further improvements to EU welfare standards both during our presidency and beyond.

Mr. Canavan: I congratulate my hon. Friend on securing the protocol to the treaty of Rome. What progress is being made on delivering our pre-election commitment to ban fur farming? Will he confirm that there is no valid agricultural argument against a ban on hunting with hounds? Will he convey his support to his colleagues in


the Home Office for the allocation of sufficient time to enable the Wild Mammals (Hunting with Dogs) Bill to become law?

Mr. Morley: The Government remain committed to ending fur farming as soon as practicable. We have had a public consultation exercise and we are currently considering the best way forward. As a mark of our intention, we have recently reduced the period of application of Mink Keeping Orders from five years to three and introduced new charges for inspections. It is the view of the Ministry that hunting with hounds makes an insignificant contribution to fox control. As for Government time, that is not a matter on which I can answer.

Mr. Alan Clark: Does the Minister accept that very high hopes were raised in animal welfare bodies—and in a large body of people who care deeply about animal welfare—by his party's manifesto at the general election and that at meetings of the all-party animal welfare group that I attended immediately after the election he continued to nurture those hopes? In fact, nothing has happened save a few measures that were already put in the pipeline by the previous Government. When will he start to deliver on the undertakings that he gave in his manifesto?

Mr. Morley: I am surprised at the right hon. Gentleman's comments. The report that I gave to the all-party animal welfare group was not on intentions but on progress that the Labour Government had achieved. I recall that one of the members who offered their congratulations on that progress was the right hon. Gentleman himself.

Genetically Modified Food

Mr. Gordon Prentice: What estimates he has made of the likely future consumer demand for genetically modified food. [22308]

Mr. Rooker: My Ministry is responsible for ensuring that such foods are safe and clearly labelled. It is for food manufacturers and producers to assess likely consumer demand for their products.

Mr. Prentice: While I acknowledge that my hon. Friend's commitment to proper food labelling is unparalleled, does he share my anxiety about developments in the European Union? Proposals emerged from Brussels last month that would ensure that the "genetically modified" label will apply to only 20 per cent. of products derived from GM soya beans and maize and that some products such as flavourings and food additives will be excluded. What steps can the Government take to ensure that the EU takes a more robust line on this matter, which excites tremendous consumer concern?

Mr. Rooker: We are taking a robust line, but my hon. Friend must not jump to conclusions about the results of the negotiations in Brussels. No decision has been made even after last week's meeting. We are still progressing the negotiations on labelling. We want labelling that is informative, practical and meaningful. That means that where GM bits and pieces have been used in the

manufacture, but refined out of the final product, the label will probably not include a reference to genetic modification. We are still negotiating on the issue in Brussels and we hope to come to a conclusion in the very near future.

Mrs. Browning: If labelling is to be meaningful, it must be enforceable. What investigation has the Minister made into the role of enforcement agencies in respect of labelling? Where the genetically modified gene exactly mimics, without any tracer or marker, the unmodified gene, enforcement is extremely difficult. It is my understanding that science has not yet provided the tests that enable enforcement officers to determine whether a product contains genetically modified genes. What progress has there been in that respect?

Mr. Rooker: The hon. Lady is perfectly right. There are going to be some products that it is impossible to test to establish whether genetically modified substances have been used in their manufacture and processing.
MAFF has a large research budget which was left by our predecessors. It is a strongly science-based Ministry, as the hon. Lady and the hon. Member for Daventry (Mr. Boswell), who is sitting next to her, will know. In collaboration with our European partners, we are using all possible avenues to explore the use of that money and the research programme to come up with testing procedures that enable us to give comfort to manufacturers, in that we would be able to test and check positively the accuracy of labelling, and to give consumers what they demand, which is information and the comfort of safety and knowledge of how products were made.

Flooding (South-east)

Mr. Mackinlay: What measures he proposes to avoid flooding and the impact of rising sea levels in and around the Thames estuary and River Medway. [22310]

Mr. Morley: The Department is responsible for flood and coastal defence policy in England, provides guidance to operating authorities and contributes significantly to the funding of capital defence measures. Local operating authorities—the Environment Agency or local councils—identify the need for defence measures and promote, design, construct and maintain them.

Mr. Mackinlay: Will my hon. Friend consider, as a matter of some urgency, initiating studies into the impact of rising sea levels, which threaten the Thames estuary and the Medway estuary? Deep in the memory of the people of Tilbury and elsewhere on those estuaries are the floods of the early 1950s. Since then, the Thames barrier has been erected, which has caused anxiety. If there is a North sea surge and the Thames barrier is used, where will the water go? That is a question the Government should address with some urgency.

Mr. Morley: Rising sea levels is a serious issue, especially for those who live in low-lying constituencies such as those on the Thames and Medway estuaries. The Environment Agency is carrying out surveys relating to projected sea level rises. It makes recommendations to the Ministry and we issue guidance on priority scores for taking action to ensure that people, land and property are adequately protected.

Farm Incomes

Mr. Bercow: If he will make a statement on recent trends in farm incomes. [22311]

Mr. Rooker: Farm incomes rose as a result of devaluations of the green pound and improved productivity in the mid-1990s. They peaked in 1995–96, when average net farm income in the United Kingdom was about £31,500. Since then, incomes have fallen, mainly as a result of the strength of sterling.

Mr. Bercow: Further to the response to my hon. Friend the Member for South-East Cambridgeshire (Mr. Paice), how can the Minister justify taking away £129 million from farmers in cuts to the over-30-months scheme and extra charges resulting from the need to meet new meat hygiene regulations and the cattle passport scheme?

Mr. Rooker: There is no justification whatsoever for the taxpayer fully funding all the controls necessary to check specified risk materials. Those extra charges will not come into force until 1 April this year. As we made clear before the election, we are working within the overall public expenditure limits of the previous Government and we make no apology for that. It is simply not possible to pour more and more taxpayers' subsidies into the industry. We wish to support the industry, but it will not benefit from further subsidies.

Mr. Pike: Does my hon. Friend accept that the incomes of hill farmers, who farm land that is difficult in terms both of the weather and what they can do on it, have been eroded for many years? What does he think the future holds for them? Does he believe that farming in those areas will continue to be viable?

Mr. Rooker: I certainly hope so. That is one of the reasons why we are redirecting funds to ensure that the majority of the money announced by my right hon. Friend the Minister of Agriculture, Fisheries and Food on 22 December goes to hill farmers and those in less-favoured areas.

Mr. Swinney: Is the Minister aware of the Scottish agricultural survey conducted by the Trustee Savings bank, which came out this week? It revealed that 94 per cent. of the respondents from the farming sector of Scotland believed that they were less prosperous this year than they were last year. How much evidence must be produced before the Government truly respond to the crisis affecting the rural industries of Scotland?

Mr. Rooker: I am not aware of the survey that the hon. Gentleman has mentioned. Farmers in Scotland will benefit from their share of the money announced by my right hon. Friend the Minister of Agriculture, Fisheries and Food on 22 December. I freely admit that the hon. Gentleman is quite right to say that net farm incomes in Scotland have dropped—in 1995–96, they were £22,000, and in 1996–97, a little over £19,000.

Mr. Skinner: Has my hon. Friend seen the latest figures out this week which showed that nine farmers had received £1 million in subsidies and that another one had received a £250,000 subsidy under the set-aside scheme?

Does he agree that those sums distort the figures relating to the many thousands of farmers who have a job to make ends meet, while there are some people at the top who are making a small fortune out of the common agricultural policy?
When my hon. Friend decides to reform the CAP, will he remember to make sure that the ones at the top, who are raking in the money, are the ones who will have their incomes cut in order to ensure that hill farmers and others get a fair crack of the whip? He should bear it in mind that when he introduces that new policy, every single Tory Member and all the Liberal Democrats, with all their farming interests, will refuse to support any change to the CAP.

Mr. Rooker: My hon. Friend is quite right. The figures that I have quoted in the two previous answers are averages, which can be extremely misleading. They are, of course, distorted by the state handouts given under the equivalent of a social security system for part of the farming industry. Some individuals get an absolute fortune and I would like nothing more than to be able to publish the detailed information, but under the terms of the law of confidentiality between the Government and the recipient of such state handouts, I am unable to do so.

Mr. Steen: Does the Minister agree that if the south Devon countryside were covered by a lot of dead sheep, lying on their backs with their legs in the air, it would not help the tourism industry? Farmers in my area are finding it more and more costly to remove dead sheep, while the income that they receive is falling. I am not asking for more state subsidies, but I know that those carcases are offending all the urban dwellers who come down to my area to enjoy the countryside. May I suggest that the Ministry conduct an inquiry into how we can reduce the costs of removing dead sheep carcases from the green and pleasant land of Devon?

Mr. Rooker: I admit that that sight is not a good advertisement for tourism in the hon. Gentleman's constituency.

Mr. Todd: On Tuesday, I spent two hours in talks with farmers from Derbyshire, having taken the precaution of booking a Committee Room for the meeting rather than leaving them in Westminster Hall. They are concerned more about the future of farm incomes than about analysing the past. They are most concerned about what progress can be made with the European Union to help to restructure their industries so that they have a healthy future. What progress can my hon. Friend report?

Mr. Rooker: My hon. Friend is perfectly right to say that it is the future that counts, not the past. I openly admit that, this year, the prospects for farm incomes are not good. We must look to the future to give hope to the industry and the thousands who work in it, love it and depend on it. That means that decisions must be taken Europewide; we are not sole masters of our future. During our presidency of the EU, we will do everything that we can to take reform of the CAP forward. Without such reform, which is opposed by many of our European economic partners and competitors, there will not be much hope for a positive future. Nothing less than reform of the CAP is required.

Mr. Jack: The Minister and the Minister of State have both made much this afternoon of the aid package


announced just before Christmas, but so far, farmers have not received a penny of it, so may I ask the Minister of State some straight questions?
Farmers facing £44 extra charges per livestock animal as a result of the Government's policy want to know when they will receive the money under the package. Has the Minister of State yet obtained Commission approval for the hill livestock compensatory allowance package? Is it possible for the Commission, in determining its agreement to that package, to change its contents, namely, the division of moneys between sheep and livestock, between the hills—[Interruption.] The Minister knows that there is a difference between the payments for cattle and for sheep and he would do well to listen to the questions that I am asking, because farmers want to know whether those in the highlands and lowlands will receive the same payments.
Will the Minister of State tell us when those matters will be resolved? Finally, will he tell us why the enhanced suckler cow payments have not been made, when the Ministry of Agriculture, Fisheries and Food already has enough information to do so?

Mr. Rooker: I will answer the question that the farmers really want to know of those on the list that the right hon. Gentleman asked—the answer is, before Easter.

Rural Development Commission

Mr. Colvin: What discussions he had with the Deputy Prime Minister about the impact on farming of the abolition of the Rural Development Commission. [22312]

Dr. John Cunningham: The Rural Development Commission has not been abolished. The Regional Development Agencies Bill recently laid before the House, which provides for setting up regional development agencies, would transfer the RDC's rural regeneration functions to those bodies. I am confident that the needs of rural areas will be properly addressed under the arrangements proposed.

Mr. Colvin: I thank the right hon. Gentleman for that reply. However, will he take the opportunity to applaud the valuable work done by the Rural Development Commission, under the excellent leadership of the noble Lord Shuttleworth, in helping the diversification of farming enterprises and the rural economy generally? In the current crisis in farming, such help is required as never before, so can the right hon. Gentleman give the House a guarantee that the proposed urban-based regional development agencies will be able to fulfil those functions as well as the RDC has done?

Dr. Cunningham: I join the hon. Gentleman in paying tribute to the work of the Rural Development Commission and to Charles Shuttleworth, with whom I and my constituents have had a long and productive relationship. The Rural Development Commission did excellent work in west Cumbria in general and in my constituency in particular, and I am happy to pay tribute to it for that work and commitment.
The regional development agencies will have a true regional remit—for rural communities as well as urban areas—and at least one member of the board will be appointed specifically to address the problems of rural areas, especially rural communities.
I disagree with the hon. Gentleman's final point. Most of the work of the Rural Development Commission was not to do with agriculture per se; it was to do with economic development in rural communities.

Mr. Beith: Does the right hon. Gentleman acknowledge that farmers' families and farm workers' families cannot continue to live in remote rural areas such as those that he and I represent unless there are rural services? Does he acknowledge that, in the most remote rural areas, the Rural Development Commission concentrated much of its effort on rural services, village shops, village workshops, transport and postal services, and that that work must continue? There is genuine concern that, given the major urban problems in regions such as his and mine, it will take a very considerable effort to ensure that that work continues.

Dr. Cunningham: I agree with what the right hon. Gentleman says. He and especially his constituents have experienced, as I have, the real benefits of the successful programmes of the Rural Development Commission. The commission remains the Government's rural development agency, with a statutory duty to continue to advise the Government, and I am determined that we should continue to have not only expert advice, but expertise in the micro-economies of rural communities and rural areas, for the reasons that the right hon. Gentleman has given.

Beef Imports

Mr. Walter: If he will make a statement on beef imports from the European Union. [22313]

Mr. Rooker: Imports of beef from other member states will continue to be permitted provided that the beef has been produced in accordance with harmonised European Community rules on the production and marketing of fresh meat and complies with United Kingdom rules that require that specified risk materials be removed before import.

Mr. Walter: In answer to an earlier question from my right hon. Friend the Member for Fylde (Mr. Jack), the Minister pointed out that we could make only spot checks on beef imports from the European Union. He did not quantify those checks. How many Ministry officials are involved in that procedure, how many spot checks have been made and how much material has been rejected?

Mr. Rooker: I cannot give precise answers to those detailed questions, but I shall ensure that I write to the hon. Gentleman—I hope before close of play today. We have taken measures within the Department, in advance of the Europewide ban on specified risk materials that will come into effect from 1 April, to ensure that we can—if you like—beef up our checks at the ports of entry. In that way, we shall have better surveillance of the paperwork involved and more random checks on incoming loads.

Mrs. Dunwoody: Is the Minister aware that, if there is no country-of-origin marking and no efficient enforcement, checking on the paperwork will not ensure anything as the European Union has a long and hallowed tradition of cheating in its paperwork first, last and always? Will the


Minister please ask for the immediate return of country-of-origin marking to the statute book so that people may know what they are buying?

Mr. Rooker: My hon. Friend is partly right. The beef labelling scheme will be introduced in this country from spring this year on a voluntary basis. It will become compulsory from 2000. In answer to the first part of my hon. Friend's question, random checks on beef supplies as well as on the paperwork will take place.

Oral Answers to Questions — ATTORNEY-GENERAL

The Attorney-General was asked—

Fraud (Further Education and Training Funds)

Mr. Skinner: What discussions he has had with the Crown Prosecution Service regarding fraud in respect of Further Education Funding Council funds and training programmes. [22331]

The Attorney-General (Mr. John Morris): I meet the Director of Public Prosecutions frequently to discuss matters of mutual interest. It is not my practice to disclose the subject matter of our discussions.

Mr. Skinner: At their next meeting, will my right hon. and learned Friend urge the Director of Public Prosecutions to investigate training programmes in Britain, especially with regard to 1995 and 1996 and a programme conducted by a firm called Link, which was subsequently taken over by CRT? CRT is an arm of a subsidiary controlled by Michael Milken, the American junk bond dealer. CRT is claiming the outstanding sum of £3.2 million in taxpayers' money for bogus tutoring; one tutor supposedly worked for 94 hours in 14 different locations on a single day. There are thousands of other similar claims. Milken and his company have had the cheek to tell the people of north Derbyshire that they are not allowed to speak about the matter and have served them with an injunction while claiming £3.2 million from the taxpayer. It is one of the biggest scams that occurred in the last few months of the previous Tory Government and it is time to investigate the matter properly.

The Attorney-General: I have noted my hon. Friend's remarks. It is for the police to investigate allegations of possible criminal conduct. If such evidence is found, it will be passed to the Crown Prosecution Service for consideration of a prosecution. The CPS will bring a prosecution if there is sufficient evidence to sustain the realistic prospect of a conviction and if it is in the public interest. The more serious the offence, the more likely it is that prosecution will be necessary in the public interest.

Crown Prosecution Service

Mr. Bayley: What plans the Government have to reform the Crown Prosecution Service. [22332]

The Attorney-General: The Government remain committed to restructuring the CPS into 42 areas, but the interim advice that we have received from the Glidewell

review team is that that cannot take effect until 1 December 1998 at the earliest. I now expect to receive the full report in March.

Mr. Bayley: Will my right hon. and learned Friend tell the House what steps the Crown Prosecution Service is taking to prepare for the implementation of the Narey proposals to ensure that offenders appear in court to face the consequences of their wrongdoing more quickly?

The Attorney-General: There are a number of fast-tracking initiatives around the country involving young offenders, in which the CPS plays a key role. The White Paper on reforming the youth justice system gives examples of two schemes in Middlesbrough and north Hampshire. The north Hampshire scheme has reduced the average time between charge and first appearance from 69 to 44 days, and the average time between charge and sentence has been brought down from 133 to 89 days. That is an encouraging development, which shows what can be achieved by co-operation between agencies. I am sure that my hon. Friend will agree with that.

Sir Nicholas Lyell: We look forward to Sir Iain Glidewell's report. When the right hon. and learned Gentleman asked him to carry out his study into the Crown Prosecution Service, including the important matter of relations between the CPS and the police, he found it necessary to use some rather strangulated wording to ask Sir Iain to
consider the manner in which the CPS influences its relationship with the police".
Can the Attorney-General assure the House that Sir Iain will be able to look at the picture in the round and see what is happening in the police, which I am sure they would welcome, as well as in the CPS? We could then be sure that the CPS and the police work closely together, so that what is done in the CPS is known right back to the constable on the beat or the officer on the case, and vice versa.

The Attorney-General: The right hon. and learned Gentleman is right. We want to ensure the maximum co-operation between the CPS and the police. He and I will recall that, at the start of the CPS, there were always differences of view on who was responsible for this failure or that failure. We have moved to create 42 areas of the CPS which are coterminous with the police areas. A former inspector of constabulary is a member of the Glidewell team, and will be deeply aware of the need to ensure maximum co-operation between the two agencies.

Lenient Sentences

Mr. Hawkins: How many appeals against over-lenient sentences have been made since 2 May. [22333]

The Attorney-General: The Law Officers between them have referred 52 sentences to the Court of Appeal.

Mr. Hawkins: Does the Attorney-General agree that the introduction of appeals against over-lenient sentences was a popular and successful measure introduced by the previous Government? Does he agree that both the victims of the crimes that led to those over-lenient


sentences and the public in general feel that that is a worthwhile power? Will he look carefully at extending the consultation between prosecution authorities and the police, and the victims of the crimes concerned, when an appeal against over-lenient sentences is considered in future?

The Attorney-General: I have observed what has been happening over the years, and I am sure that the change has turned out to be worth while, although I concede that, at the beginning, many of us had doubts. Those were not confined to one party and went much wider than politicians—to the judiciary as well—because there was concern about the dangers of double jeopardy. That is taken into account by the courts, although it is not in the legislation. I, like my predecessors, receive the views of the prosecutor and independent Treasury counsel. We must have regard to current sentencing practices. When the judge delivers his initial sentence, he has regard to all the circumstances, including the victim.

Mr. Lock: Can my right hon. and learned Friend tell us what the Court of Appeal has made of sentences referred to it by him? I accept that every case that comes before him must be judged on its merits, but can he give us some guidance on whether his view that there are over-lenient sentences is, by and large, supported by the decisions of the court?

The Attorney-General: Of the 52 sentences that I and the Solicitor-General have referred since 1 May last year, 19 have been reviewed by the Court of Appeal, of which 13 have resulted in increased sentences. In six of those 19 cases, the Court of Appeal held that the sentences were unduly lenient, but exercised the court's discretion not to increase the sentence. The remaining 33 sentences are yet to be heard. The figures for the last few years are of roughly the same order.

Mr. Swinney: I have expressed to the Attorney-General the concern of one of my constituents, Mr. Brian Pithie, about what he considers to be an over-lenient sentence in the case of Philip Dale at Winchester Crown court. Will the Attorney-General give an assurance that he will look at the case and consider referring the sentence to the Court of Appeal for its leniency to be tested?

The Attorney-General: All cases referred to my office are considered personally by me or by the Solicitor-General, whoever is available. The law lays down that that has to be done within a period of 28 days from sentence. That is the limitation and that means that sometimes there are few days left, as I am sure my predecessor will be the first to agree, before reference is made. The cases, however, are personally considered—they have to be and always have been.

Discontinued Prosecutions

Mr. Gordon Prentice: What considerations are taken into account when determining not to proceed with a prosecution on the grounds that it is against the public interest. [22334]

The Attorney-General: The code for Crown prosecutors sets out factors in favour of and factors

against a prosecution. Factors against a prosecution include the youth or old age or infirmity of the defendant. In cases of any seriousness, however, a prosecution will usually take place unless any factors against a prosecution clearly outweigh those tending in favour.

Mr. Prentice: The reasons also include possible embarrassment to the country and its international relations but, notwithstanding that and the other factors that the Attorney-General cited, when a prosecution does not proceed and the person who has been investigated is rich and powerful, has been in authority and may even have been a Member of the House, is there not a powerful case for saying that the public interest requires that the reasons should be given?

The Attorney-General: The reasons that are taken into account are set out fully in the code for Crown prosecutors. As regards ex-Members of the House, my hon. Friend has gone over the ground on more than one occasion and I have nothing to add, save that the police are investigating the matter.

Mr. Burnett: Do the same considerations apply in respect of prosecutions for tax evasion and why are there so few such prosecutions? Would the Attorney-General ever be assisted if a Department of State prepared a case against a Minister in that same Department?

The Attorney-General: Prosecutions in Inland Revenue matters or decisions on whether to compound matters alleged to be due are matters for my right hon. Friend the Chancellor of the Exchequer. He is responsible for that side.

Mr. Ian Bruce: Would the Attorney-General be consulted if there were an investigation of a Minister of the Crown, particularly if it reflected on something that he did outside the House rather than on his duties within the House? If so, at what point would that come about and would he be consulted about any prosecution?

The Attorney-General: As I said previously with regard to a former Member of the House, generally there would be no reason for me to intervene, it would be extremely unlikely and I hope that I would not. That has been the tradition where there has been political involvement.

Mr. Owen Oyston

Mr. Campbell-Savours: If officials in his Department saw papers in relation to the prosecution of Mr. Owen Oyston. [22335]

The Attorney-General: No.

Mr. Campbell-Savours: This is a very difficult case to raise because we are talking about a rape trial where the victim and the witness for the defence were teenage girls, and the prosecution hinged on their evidence.
Can my right hon. and learned Friend tell me whether he thinks it fair that, under the Sexual Offences (Amendment) Act 1976, a victim should have total anonymity and be protected from cross-questioning as to


her character when the witness in the defence, as happened in this particular case, is subject to very close questioning as to her character? Indeed, her whole previous life is laid bare as part of the prosecution's case. Are we seeing natural justice when cases are conducted in that way?

The Attorney-General: My hon. Friend has put very carefully the matters that I know are of concern to him. He is right to refer to the Sexual Offences (Amendment) Act 1976. It is a matter for the judge whether he gives anyone leave to ask questions regarding the victim. The test will be that he will grant leave only if he is satisfied that it would be unfair to the defendant to refuse to allow such evidence. As regards a witness and whether

questions about previous sexual experience should be allowed, that is also a matter for the judge. As regards the 1976 Act, it was brought up to date in 1994.
I am also concerned about anonymity. The anonymity of complainants in cases of rape and other specified sexual offences is protected from the time of the complaint, whereas the current legal position does not prevent media identification of juvenile offenders before the point of charge. However, the effectiveness of these provisions, when set against the increasing use of global information technology and publications outside the jurisdiction of the courts, is a matter of proper concern, and I am giving very careful consideration to it.
Returning to the gist of my hon. Friend's questions, if he has any new matters arising from the case to which he referred, these can be looked at by the Criminal Cases Review Commission.

Business of the House

Mrs. Gillian Shephard: May I ask the Leader of the House to tell us the business for next week?

The President of the Council and Leader of the House of Commons (Mrs. Ann Taylor): The business for next week is as follows.
MONDAY 26 JANUARY—Consideration in Committee of the Government of Wales Bill (Third Day).
TUESDAY 27 JANUARY—Opposition Day [6th Allotted Day].
Until about 7 pm, there will be a debate on development in the countryside and the green belt, followed by a debate on the London underground. Both debates will arise on Opposition motions.
WEDNESDAY 28 JANUARY—Until 2 pm, there will be debates on the motion for the Adjournment of the House.
Consideration in Committee of the Scotland Bill (First Day).
THURSDAY 29 JANUARY—Consideration in Committee of the Scotland Bill (Second Day).
FRIDAY 30 JANUARY—Private Members' Bills.
The provisional business for the following week is as follows.
MONDAY 2 FEBRUARY—Consideration in Committee of the Government of Wales Bill (Fourth Day).
TUESDAY 3 FEBRUARY—Consideration in Committee of the Government of Wales Bill (Fifth Day).
WEDNESDAY 4 FEBRUARY—Until 2 pm, there will be debates on the motion for the Adjournment of the House.
Remaining stages of the Public Processions (Northern Ireland) Bill [Lords].
Motion on the Police Grant Report (England And Wales).
THURSDAY 5 FEBRUARY—Motions on the English revenue support grant reports.
FRIDAY 6 FEBRUARY—Private Members' Bills.

Mrs. Shephard: I thank the Leader of the House for her statement and for continuing, so far as she can, to give the House the business for two weeks at a time. It continues to be helpful to the House and I know that it is as a result of her enthusiasm that the House is given as much advance notice as possible of the business that it can expect.
May I ask the right hon. Lady when we may expect a debate on the national health service? She will know that we have not had such a debate since before the summer recess and that, when we did, it was the Opposition who called one. We have now had a number of statements and a White Paper on health matters, and it is time that the Government provided the House with an opportunity to debate them.
I should be grateful if the right hon. Lady would convey to the Prime Minister the concern felt in many parts of the House at his increasingly arrogant disregard for Parliament. He continues to refuse to answer the simplest of questions at Prime Minister's Question Time. It is one

thing to halve at a stroke the number of times a week that the Prime Minister consents to appear in the House. [Interruption.] It is quite another to make a habit of bluster, waffle and obfuscation in answer to questions to which the people have a right to hear a straight response.
Can the right hon. Lady arrange for an early debate on women's issues so that the House may hear from the Minister for Women why, since her appointment, she has answered only one question in the House, initiated no debates, made no statement and not commented on cuts in benefit for single mothers? After all the Government's electoral promises, is not her appointment a big disappointment to women and to the many newly elected women on the Labour Back Benches? Is it not a waste of money to taxpayers, who are funding her office to the tune of £119,000 a year—rather a lot for rather little?
May we have an early debate on planning issues so that the Deputy Prime Minister can expand his recent statement to the effect that the green belt is a Labour achievement and he intends to build on it?
Will the right hon. Lady arrange for the appropriate Minister to come to the House to clarify, for the enlightenment of taxpayers funding ministerial trips abroad, whether the term "partner" appears in the ministerial code of conduct or whether the term "spouse" is used throughout? Are any changes planned, or have changes already been made, to the code, and have those been reported to the House? What is the definition for those purposes of "partner", and for how long must a relationship have lasted for a partner to qualify for a free trip abroad at taxpayers' expense? Who makes that judgment? I hope it is not the Prime Minister's press secretary.

Mrs. Taylor: The right hon. Lady asked several questions. First, she asked about a debate on the national health service. Important statements have been made to the House, and a Green Paper will be published shortly. I shall consider what she said, but, as she knows, the programme up to Easter is extremely crowded so I cannot guarantee to find time for that debate, much though we should like to be able to boast about our achievements and the money that the Government are putting into health.
I reject the right hon. Lady's comments about the Prime Minister's answers at Question Time. As one of my hon. Friends said, there is no diminution in the total time available. Indeed, the figures show that more questions get asked and more answers are given. [Interruption.] I accept that Conservative Members may not like the answers they are given; that is because the answers do not accord with their views of the ways of the world. They should be grown up enough to know that they will not always like the answers they are given.
In respect of the right hon. Lady's questions about a debate on women's issues, the Minister for Women has requested time for a debate on the Floor of the House on those specific matters. So far, it has not been possible to provide time for that. I notice that when the Opposition selected the topic for discussion on their Opposition day next week, they did not choose to discuss women's issues—perhaps because there are so few women Conservative Members.
It is well known that my right hon. Friend the Deputy Prime Minister intends to make a statement on planning issues soon. The Government are committed to protecting


the countryside and to regenerating towns and cities. Meanwhile, we are sticking to the previous Adminis-tration's target of 50 per cent. of new houses to be built on previously developed land.
There have been no changes to the code in respect of ministerial trips and those who accompany Ministers on such trips.

Mr. John Cryer: My right hon. Friend will be aware that pensioners have traditionally looked forward to their winter fuel bills with fear and trepidation. Will she join me in congratulating the Government on their prompt action? Will she arrange for a statement to be made explaining the actions that the Government have taken to alleviate the problem? Their response contrasts with the record of the Conservative party, which treated pensioners with more vindictiveness and disdain than any Government since pensions were founded in 1911.

Mrs. Taylor: I agree with my hon. Friend. The Government took prompt action so that pensioners would not have to face another winter fearful of whether they could turn up the heating and afford the coming fuel bill. The Government have allocated extra help of more than £400 million for this winter and the next. Payments to those who need that help most will be made later this month. We have reduced VAT on fuel, whereas the previous Government introduced it and intended to double it, and we have reduced the gas levy. We have shown that helping pensioners with their winter fuel bills is a priority of the Government.

Mr. Paul Tyler: Will the Leader of the House give us an early debate on the role and responsibility of local education authorities? Will she confirm that a meeting took place last week between the Prime Minister, the Minister for School Standards and the chief inspector of schools, Mr. Christopher Woodhead, at which the future of LEAs was discussed in some detail? Will she confirm that the Government have specific plans significantly to amend and alter the roles and responsibilities of local education authorities? That is an important issue for hon. Members and for members of those authorities. Will she ensure that the Secretary of State for Education and Employment makes an early statement on the matter?

Mrs. Taylor: I cannot confirm any specific meeting. The hon. Gentleman did not warn me that he intended to ask that question, and I do not know what meetings every Minister has had. The Government believe that local education authorities have a very important role to play, and he will realise that if he examines the School Standards and Framework Bill, which is being considered in Committee.

Ms Sally Keeble: In recognition of the progress that the Government have made on the scandal of pensions mis-selling, will my right hon. Friend find time for a debate on the issue? Pensions mis-selling was a direct result of the policies of the Conservative party when in government. Does she agree with me that, given the demographic profile, the progress that the Government have made in that area has been of particular help to women?

Mrs. Taylor: I agree with my hon. Friend. The Economic Secretary to the Treasury, who has taken a

particular interest in the matter, has made serious progress in trying to ensure that the problem is resolved. She has established clear deadlines for all firms, large and small, and has made it absolutely clear that they must be observed. It is important that we tackle this problem, which was created and then ignored by the Conservative party. The Ministers involved will continue to pursue the matter, but I cannot find time for a specific debate on it in the very near future.

Mr. Nicholas Soames: In thanking the right hon. Lady again for her great courtesy in doing her best to keep us informed of business two weeks ahead, may I ask her to arrange for the Prime Minister to give a clear answer next week to the question whether it is tolerable and tenable for the Paymaster General, who is the chief tax gatherer in the land, to be subject to an investigation by the Inland Revenue and retain his position at the Treasury? Is it not an affront to the House and the people of this country that the hon. Gentleman retains his position at the Treasury at the same time as he is allegedly the subject of a special investigation? To clear the matter up, will the right hon. Lady give us a answer, yes or no, to the question whether he is subject to such an investigation?

Mrs. Taylor: I think that the hon. Gentleman protests too much. He knows that, as the Prime Minister explained yesterday, neither the Inland Revenue nor any other regulatory board can comment on investigations or, indeed, on whether or not an investigation is taking place. I believe that the hon. Gentleman was told that yesterday, and I think that he should remember it.

Mr. Tam Dalyell: Has my right hon. Friend seen early-day motion 666?
[That this House calls for the immediate opening of serious negotiations with the Iraqi Government with a view to ending sanctions and seeking a solution to outstanding problems; and would deplore any military action by the United States which is opposed by three permanent members of the Security Council.]
The motion, tabled by my right hon. Friend the Member for Chesterfield (Mr. Benn) and me, expresses a minority view on relations with Iraq.
May we have a statement next week making clear the precise objectives of any Anglo-American military action, in the absence of massive ground forces, with a view to the use of chemical or biological weapons? Before British service men are committed to military action, should not the House at least have an opportunity to express an opinion?

Mrs. Taylor: My hon. Friend knows that his views on our problems in respect of Saddam Hussein do not coincide with those of the Government. Although he has drawn my attention to early-day motion 666, I must tell him that I do not accept his analysis. As for his question about a statement being made to the House before the deployment of troops, I can confirm that, operational circumstances permitting, we would made a statement to the House before committing any troops.

Miss Anne McIntosh: Does the Leader of the House agree that the Minister for Women should


make an early statement to the House? I remind hon. Members that, in a written answer given on 20 November 1997, the Minister said that the Government were taking steps to "ensure that women's interests"—

Madam Speaker: Order. The hon. Lady should not quote, because this is part of Question Time. I am sure that she can paraphrase.

Miss McIntosh: Would the Minister for Women care to comment to the House on the Government's views on this week's Equal Opportunities Commission document on proposed changes to the Equal Pay Act 1970 and the Sex Discrimination Act 1975?

Mrs. Taylor: I said that my hon. Friend the Minister had asked for a debate on these issues, although it has not been possible to find time for such a debate yet. The hon. Lady can raise those issues with my hon. Friend, either at Question Time or in a written question.

Ms Beverley Hughes: Is my right hon. Friend aware that, in Committee earlier this week, the shadow Secretary of State for Education and Employment turned on its head Conservative party policy on class sizes when he recognised the link between educational attainment and smaller class sizes for young children—and, furthermore, said that he recognised that class sizes were relevant to them? Will my right hon. Friend arrange an early debate, so that we can welcome this blinding conversion of a party which for so long denied any link between class sizes and educational attainment?

Mrs. Taylor: My hon. Friend makes a fair point. Over the years, I have heard the arguments advanced both by the present shadow Leader of the House, the right hon. Member for South-West Norfolk (Mrs. Shephard), and by her right hon. Friend the Member for Bromley and Chislehurst (Mr. Forth), who may still hold the old rather than the new Conservative view. Nevertheless, I welcome the transformation. I hope that every hon. Member will read the Committee Hansard, and see how clear it is that the Opposition have been converted to the view that class sizes make a difference. I also hope that the Opposition will help us to implement one of the key pledges in our election manifesto.

Mr. John Wilkinson: In view of the salutary passage of an amendment in the other place requiring publication by the Government of a Bill on proposals for a Greater London authority before the people of London are called upon to vote on that subject in a referendum, will the Leader of the House clearly explain the Government's exact proposals for that legislation? Are the people of London now to have the opportunity of judging clear, definitive legislative proposals before they are called on to vote; or are they still to be asked, on 7 May, to take a great leap in the dark, on the basis of a White Paper published only a few weeks before the referendum which could, of course, subsequently be changed?

Mrs. Taylor: The amendment passed in the other place was significant, not least because it was passed by

hereditary peers. Although the legislation issue is not yet resolved, we have made it clear that the White Paper will be published in good time.

Ms Ruth Kelly: May I welcome the Government's welfare-to-work programme, which will give new hope and opportunity to the unemployed, who were neglected for so long under the Tories? As one in five households has no one in work, the measure is essential to tackle the human waste and poverty that result from unemployment. Will my right hon. Friend agree to arrange a debate on such an important issue?

Mrs. Taylor: My hon. Friend is correct to say that welfare to work—which the Conservative party has opposed on every occasion—is a very important issue. The Government are committed to providing new opportunities for the unemployed and to helping people back into work. The matter has been debated on some occasions, and, important as it is, I do not think that we will be able to find time in the very near future for another debate on it.

Mr. Eric Forth: May I press the right hon. Lady to have a debate urgently on the matter of ministerial accommodation—so that we may know who is living where and at what expense, and how much taxpayers' money has been spent on the refurbishment of those premises, if only so that people being denied benefit might know where their money is going? While we are at it, will she help her fellow Ministers by clarifying the position on the code of ministerial conduct; on whether spouses remain spouses, or partners become spouses, or spouses become partners; on who is travelling with whom, and on what basis; and on when all that started, anyway?

Mrs. Taylor: The right hon. Gentleman raises the issue of accommodation. As with the issue of travel, there has been no change in practice.

Dr. Stephen Ladyman: Further to my right hon. Friend's answer to the question asked by my hon. Friend the Member for Linlithgow (Mr. Dalyell) on the situation in Iraq, I believe—and I believe that the Government may agree—that Saddam Hussein is a monster by any civilised measure, that he possesses a stockpile of nerve gas, that he probably can construct an atomic weapon, that the inspection process that the United Nations is trying to impose is already proving to be effective, and that we have stepped down a road that leads inexorably to war. While there are still some options for diplomacy, will she please give further thought to how the House may debate that important issue, before it is too late?

Mrs. Taylor: There are still important options for diplomacy, and it will always be the Government's priority to follow that course. My hon. Friend is quite right in his analysis of the difficulties that Saddam Hussein has created. The United Nations Special Commission has reported that Iraq could be producing enough anthrax each week to fill two warheads. The situation and dangers are therefore evident. I have said that if there is a question of British troops being used,


the House will of course be given the opportunity to express an opinion. However, we all hope that the situation will not come to that.

Rev. Martin Smyth: The Leader of the House will be aware that early-day motion has been signed by about 355 hon. Members.
[That this House is concerned that increases in road traffic will cause more atmospheric pollution and emissions of greenhouse gases, hampering the achievement of the Government's 20 per cent. carbon dioxide reduction target and damaging communities and the countryside; notes the similar concerns expressed in recent reports by the Royal Commission on Environmental Pollution and the Transport Committee; notes, too, that the CBI has estimated that traffic congestion is costing industry £19 billion per year; notes the words in the Government's election manifesto that 'a sustainable environment requires above all an effective and integrated transport policy at national, regional and local level' and the acceptance in Consensus for Change 'that the current state of affairs is unsustainable'; believes therefore that road traffic reduction is a vital part of a sustainable transport policy, and accordingly welcomes the passing of the Road Traffic Reduction Act 1997 but regrets that this only applied to local authorities and local roads, believing that this anomaly, whereby traffic reduction targets are required for local roads, but not for national roads, cannot fully enable the establishment of 'an effective and integrated transport policy at national, regional and local level'; and therefore welcomes the proposals for road traffic reduction measures promoted by a cross-party group of honourable Members which sets out a requirement for the Government to consult widely, draw up and implement national transport policies to achieve, in a spirit of partnership a reduction of road traffic miles of 5 per cent. by 2005 and 10 per cent. by 2010.]
Representing a constituency in a city that has been described as the most polluted city in the kingdom and which has several of the most congested roads, may I ask whether the Government will not only give a fair wind to the Road Traffic Reduction (United Kingdom Targets) Bill next Friday but help to improve the health and quality of living of many of our people?

Mrs. Taylor: I can confirm that we share many of the concerns about the problems that the hon. Gentleman mentioned. However, it is not my practice to say in advance what the Government's attitude will be to any private Member's Bill.

Charlotte Atkins: In recognition of the vital role of local magistrates courts, can the Leader of the House find time for a debate on their future? I am especially concerned about that issue, because my constituency faces the closure of its last magistrates court in Leek, and local people will therefore be deprived of local justice administered by local people.

Mrs. Taylor: I do not think that it will be possible to provide a debate in Government time in the near future. The relevant Minister was answering questions on such matters in the House earlier this week. Perhaps my hon. Friend will want to apply for an Adjournment debate to pursue that constituency case.

Mrs. Cheryl Gillan: May I ask the Leader of the House for an urgent debate on issues of national importance—the millennium bug and the year 2000 problem? Is she aware that at an Action 2000 press conference this morning the Prime Minister issued a statement saying that there were 100 working weeks left

until the millennium, and that that was only just enough time to deal with the problems connected with the year 2000?
I should have thought that a statement on the issue was urgently required in the House, not least because I was refused access to the press conference and received the papers from it three quarters of an hour after members of the press. Does the right hon. Lady not think it disgraceful that, yet again, the media were informed before Members of the House? May we have an urgent debate to sort out the mess that the Government are making of the millennium bug?

Mrs. Taylor: The hon. Lady was a member of a Government who did very little to prepare for the event, which is why my right hon. Friend the Chancellor of the Duchy of Lancaster made a statement on the matter shortly before Christmas. The Government are aware of the threat and, unlike our predecessors, we are far from complacent.
Every business, every Department and every organisation must take responsibility for tackling its own systems. None the less, the Government are spending more than the previous Government did in preparation for the event, and my right hon. Friend the President of the Board of Trade is chairing a ministerial group to bring together work in the public and the private sector. Unlike the previous Government, we take the problem extremely seriously.

Mr. Paddy Tipping: Given the widespread public support for greater access to open countryside, will the Leader of the House find time for a debate soon, so that the Government can explain what steps they are taking to implement their manifesto commitment in that regard?

Mrs. Taylor: I know that my hon. Friend has taken a keen interest in that issue over many years, and he is right to remind me of the manifesto commitment. The Government are firmly committed to greater freedom to explore open countryside. We intend to issue a consultation paper shortly to outline our proposals for achieving greater access, and I hope that when that is published my hon. Friend will be pleased with the progress that has been made. Whether we can find time for an early debate on the subject is another matter, and I cannot promise him the time that he might want.

Mrs. Jacqui Lait: Would it be helpful to suggest to the Leader of the House that we have a debate on women's issues, so that the Minister for Women can have a rare starring role at the Dispatch Box, close to International Women's Day? We would have the opportunity to find out how many married women Members are looking forward to their husbands taking responsibility for, and signing, their tax forms, and how many male Members are looking forward to taking on that responsibility.

Mrs. Taylor: The hon. Lady asked whether that would be a helpful question, and I have to tell her that it would not. I doubt whether she will think my answer very helpful either. I have already said that my hon. Friend the Minister is looking for a debate on those issues. When we


were in opposition we often used an Opposition day so that such a debate could take place, and the hon. Lady may wish to explore that possibility with her hon. Friends.

Mr. Andrew Mackinlay: May we have an early statement from the Prime Minister or the Foreign Secretary detailing the foreign policy baseline against which the strategic defence review must be judged? My right hon. Friend, I and others were proud to support the manifesto, which promised that new Labour would maintain Britain's capacity for peacekeeping, humanitarian effort and power projection in the world. It is important that we have a clear statement that Labour intends to maintain that capacity in advance of the strategic defence review.

Mrs. Taylor: I do not think that we can have an early debate on those matters. My right hon. Friend the Secretary of State for Defence has made it clear that the review that has taken place is foreign policy-led and not Treasury-driven. I hope that that will reassure my hon. Friend in the absence of an early debate.

Mr. Owen Paterson: I welcome the announcement of a day's debate on the revenue support grant, but must inform the Leader of the House that the proposed local government settlement for Shropshire will have catastrophic consequences. There will be not only a 17 per cent. increase in council tax, but £10 million in cuts, 450 teachers may lose their jobs and class sizes may go over 40. I addressed 4,000 people in Shrewsbury on Saturday and the Government's election slogan, "Education, Education, Education" was openly mocked by two highly respected local headmasters. May we please have a further day's debate on the local government settlement?

Mrs. Taylor: I do not accept the hon. Gentleman's analysis of the situation, but he has put in his bid to speak in that debate, if he thinks that it is still necessary for him to do so.

Mr. Martin Salter: Is my right hon. Friend aware of the recent reports that more than half of

the £1 million of the Chinese heroin dealer's money donated to the Conservative party was spent on a printing press for Conservative central office in Reading? Does she agree that it is high time that the leader of the Conservative party came clean on the sources of party funding? What opportunity does she plan to give Parliament to discuss party funding?

Mrs; Taylor: I was not aware, until it was brought to my attention by my hon. Friend, that that money might have been spent in that way. Many facts about the situation are still extremely unclear. Until we can make further progress to ensure that we have new, appropriate rules for accepting donations, we should have clarification of what has happened in the past. However, that is a matter not for me, but for the Conservative party. If there were a prospect of discovering the facts, I would be tempted to provide time to do so.

Mr. Andrew Stunell: Will the Leader of the House arrange for the Home Secretary to explain to the House why 300 police officers have been cut from police forces since 1 May and what he intends to do about it?

Mrs. Taylor: I cannot arrange for a debate on that matter. I have announced a debate on the police grant.

Mr. Adrian Sanders: May we have a debate covering the Government's policy towards tourism, particularly in relation to United Kingdom seaside resorts? Three key issues seem to confront that industry. The first is competing with overseas hoteliers, who have a more beneficial value added tax rate on accommodation. Secondly, there is a problem with the six-bed rule, which is not being implemented consistently throughout the country. The third issue is the threat from a non-regionalised national minimum wage.

Mrs. Taylor: I am afraid that there is little prospect of such a debate in the next couple of weeks, unless the hon. Gentleman is successful in a request for an Adjournment debate or something of that sort. Some of those questions were raised with the relevant Ministers at Question Time on Tuesday.

Orders of the Day — Bank of England Bill

As amended (in the Standing Committee), considered.

New clause 1

ROLE OF TREASURY COMMITTEE IN APPOINTMENTS UNDER SECTION 13(2)(c)

'—The Chancellor of the Exchequer shall not make any appointment under section 13(2)(c) until the Treasury Select Committee of the House of Commons has—

(a) been consulted on the establishment of a procedure of open competition in relation to such appointments,
(b) held a confirmatory hearing or hearings on the suitability of any person nominated following the procedure mentioned in sub—paragraph (a), and
(c) reported to the House of Commons its approval of that person's appointment.'.—[Mr. Heathcoat-Amory.]

Brought up, and read the First time.

Mr. David Heathcoat-Amory: I beg to move, That the clause be read a Second time.

Madam Speaker: With this, it will be convenient to discuss the following: New clause 3—Confirmation hearings for Bank appointments—

'—(1) The Treasury Committee of the House of Commons may, within thirty calendar days of a nomination being made in relation to an appointment under sections 1(2) or 13 of this Act, make a report to the House of Commons—

(a) stating its conclusion that a nominee for the post of Governor or Deputy Governor meets the criteria of competence and personal independence or that a nominee for membership of the Monetary Policy Committee meets the criteria specified in'section 13(4), or
(b) giving its reasons for considering that a nominee for the post of Governor or Deputy Governor does not meet the criteria of competence and personal independence or that a nominee for membership of the Monetary Policy Committee does not meet the criteria specified in section 13(4), and inviting the Chancellor of the Exchequer to reconsider the nomination.

(2) A nomination of which the Committee signifies its approval or on which it decides not to make a report to the House of Commons shall be confirmed by the Chancellor of the Exchequer on receipt of the Committee's report or after thirty days, whichever is the sooner.

(3) A nomination which the Committee invites the Chancellor to reconsider shall not be confirmed until seven days after the Chancellor has written to the Treasury Committee giving his reasons for continuing with the nomination.

(4) The provisions of subsections (1) (2) and (3) above shall apply only when the Treasury Committee has been formally constituted.

(5) If at any time after the passing of this Act—

(a) the name of the Treasury Committee is changed; or
(b) the functions discharged by that Committee at the passing of this Act, or functions substantially corresponding thereto, are discharged by a different Committee,

the reference to the Treasury Committee shall be construed as a reference to that Committee by its new name or to the Committee then discharging those functions.

(6) Any question arising under subsections (4) and (5) shall be determined by the Speaker of the House of Commons.'.

Amendment No. 34, in clause 1, page 1, line 10, at end insert—
'(2A) The directors of the Bank shall be representative of the different regions of the United Kingdom.'.

Amendment No. 29, in clause 13, page 5, line 27, at end insert—
'(2A) No person shall be appointed under subsection (2)(b) or (c) unless he is a British subject.'.

Amendment No. 31, in page 5, line 35, after `experience,', insert
',including knowledge or experience of manufacturing industry,'.

Amendment No. 28, in page 5, line 35, at end insert
'and that his views on monetary policy have been made known to Parliament.'.

Amendment No. 3, in page 5, line 35, at end insert—
(4A) No person shall be appointed under subsection 2(c) if he has within the preceding five years been an employee of the Bank.'.

Amendment No. 18, in schedule 3, page 21, line 31, leave out 'or (c)'.

Amendment No. 20, in page 21, line 32, leave out '3' and insert '4'

Amendment No. 19, in page 21, line 34, at end insert—
'1A Appointment as a member of the Committee under section 13(2)(c) shall be for a period of four years.'.

Mr. Heathcoat-Amory: The House will recall that at the centre of the Bill is the proposal to set up a Monetary Policy Committee to take all decisions relating to short-term interest rates. Indeed, it is already operating, and the Bill gives it statutory force. That is a major departure from previous practice, under which interest rates were set by the Chancellor of the Exchequer after consulting and receiving advice from the Bank of England.
The new clause would give the House some influence over appointments to the Bank, and specifically to the Monetary Policy Committee, through the Treasury Select Committee. As the Bill stands, the Chancellor has truly awesome powers of patronage. He will directly appoint most of the members of the Monetary Policy Committee. The Governor and the deputies will be appointed separately, but on the recommendation of the Prime Minister, so those appointments are also effectively in the hands of the Executive.
The Chancellor will be consulted on the appointment of two of the bank representatives on the Monetary Policy Committee, so he effectively has a veto on those appointments as well. The four other outside appointments to the Monetary Policy Committee are entirely in the Chancellor's gift. It is obvious that this very important new body is effectively, and in practice, a creature of the Executive, and specifically of the Chancellor.
Committee members will be appointed for only three years, so they will have little time to build up any independent authority before facing re-election and coming again under the Chancellor's discretion. That contrasts sharply with practice overseas. The Bundesbank, for instance, makes its equivalent appointments for a term of eight years, giving the members real authority and independence that stretches beyond, for instance, any one Parliament. The three-year term proposed in our case means that people will face reappointment within a single Parliament.
Members of the relevant committees of the Federal Reserve bank in the United States are appointed for 14 years, so they are not only much more independent in the method by which they are appointed but have a long period of service, which gives them real authority and standing, and the ability, when necessary, to stand up to the Executive and assert their own judgment against political interference. That is not what we will have here.
That is why some of our amendments attempt to establish a longer term of office for the appointees, and I urge the House to support them; but I speak chiefly in support of the new clause, which picks up an idea first floated by the Treasury Select Committee. The Select Committee's members are drawn from all parties, it has a distinguished Labour Chairman, the hon. Member for North Durham (Mr. Radice), and its report was unanimous, so I advance these ideas in the spirit of the House of Commons trying to improve legislation and achieve some influence on the proposed procedure. Otherwise, we are faced with a quango. The Government are in danger of being seen to set up a quango, which they will appoint and on which no restraint is placed.
Hon. Members will remember that, before the election, we heard a lot of windy rhetoric from the then Opposition about how they wished to democratise quangos and make them more accountable. Of course, they have not done that. Indeed, they are creating many more quangos. We are debating just such an advance. Moreover, not only will the Monetary Policy Committee be a quango itself, but it will report to another quango, the court of directors of the Bank. Members of that court are also appointed by the Chancellor of the Exchequer, and their term of office is being reduced from four years to three. We face the rather alarming prospect of one quango reporting to another.
The reason why that is wrong, even according to the Government's own logic, is that it undermines the credibility of what the Government are trying to do: set up an anti-inflation strategy free from political interference. That is not achieved by setting up a body which is so obviously not free from political interference. For the reasons that I have described, the Monetary Policy Committee will be an offshoot of the Treasury.
The other reason why the proposal is wrong is that there are disturbing examples of how the Government respond to pressure. We all remember the episode of formula one and tobacco sponsorship. In that case, the Government changed their policy. Indeed, they broke an election promise because they came under pressure from a very rich donor to the Labour party. It is therefore not good for the Government to be trusted to make impartial appointments to the new, important body that will set interest rates, given that their record is already so unfortunate. It is vital that the appointments are made on merit in an unbiased and impartial way.

Ms Ruth Kelly: Does the right hon. Gentleman think that the credibility of Government policy fell on the announcement of independence for the Bank of England? From the facts, it is absolutely clear that the markets thought that the credibility of Government policy had been enhanced because long bond yields fell.

Mr. Heathcoat-Amory: The hon. Lady ought not to be quite so sanguine about the inflation record. She will

know that her Government have missed their own inflation target in every month since the election. So the jury is out. The Government have wisely continued appointments made under the previous Government, but I am debating future appointments that the Government will make as a result of the Bill.
That is why—the hon. Lady should agree—it is very important that the Government are seen to be entirely disinterested. She will correct me if I am wrong, but I think that she was a member of the Select Committee that produced the report to which I referred. I think that I noticed her name on it. She will therefore definitely want to support the new clause.
The new clause is modest. First, it would simply ensure that the appointees are selected after a process of open competition. That is a very modest requirement. Indeed, Ministers suggested in Committee that they had no particular problems with it. Secondly, it ensures that the appointments are subject to confirmatory hearings by the Treasury Select Committee. That does not mean that the House of Commons will make the appointments or suggest candidates: it simply means that the candidates suggested by the Government should be confirmed to ensure that they measure up to the full standards of expertise and impartiality that the House expects.
I shall quote just one paragraph from the Select Committee report. I see now that the hon. Member for Bolton, West (Ms Kelly) was a member of the Committee, and therefore will fully support this sentiment. It said:
We believe very strongly in the importance of ensuring that the appointment process is carried out with openness and independence from political influence. We therefore intend, even in the absence of statutory provision, to instigate hearings and make reports to Parliament.
I therefore move the new clause in the knowledge that it has the support of Labour and other members of the Treasury Select Committee, including some who are in the Chamber this afternoon. It will ensure that appointments are impartial, and will give added credibility to what the Government are trying to do in setting up the committee in the first place.

Mr. Charles Clarke: I do not support new clause 1. It gives an inappropriate role to the Treasury Select Committee in the formation of Government legislation. I support new clause 3 which, as the right hon. Member for Wells (Mr. Heathcoat-Amory) said, was supported by the Treasury Select Committee, although not unanimously. The right hon. Member for Fareham (Sir P. Lloyd) did not agree with that proposal, so it would be wrong to give the impression that a proposal unanimously supported by the Select Committee was lying before the House.
We do not think that confirmation is a precondition for the effectiveness and independence of the Bank, but we believe that it would enhance it, and we support the way in which the Government are going about these things. The Select Committee will hold hearings in any event, as we make clear in paragraph 49 of the report, but we believe that establishment of the role of the Select Committee in statute would enhance the Bill.
There are several reasons for that. First, it would make it clear that the appointment of the key people who determined monetary policy was made not only with


reference to the Government of the day, but on the basis of a broad-based discussion about the issues at stake, in which everything was brought out into the open. Secondly, it would strengthen the relationship between the Bank and Parliament. A new feature of the Bill is the establishment of precisely such a relationship. The confirmation hearings would make it clear at the time of the appointment of key people that the role of Parliament was important. Thirdly, it would enhance public confidence in the people in the Monetary Policy Committee who took key decisions.
There was a time when decisions were all taken behind closed doors in a dark and secret way, and it is to the credit of the Government that they have introduced the Bill and brought many decisions into the open. Already, not long since the new Government came to office, the publication of the minutes of the committee has enhanced public understanding of the considerations taken into account when interest rate policy is established.
New clause 3 would therefore increase accountability and openness. The Treasury Select Committee is giving great attention to the way in which the reform would operate. It would be done extremely carefully, in the way set out in paragraph 47 of the report. We do not believe in a type of open house on the American Congress select committee model, in which people's private lives and conduct can be brought into the public arena. Discussions must be on key issues of professional competence and personal independence.
That is why we propose that the questioning of candidates should be circumscribed and limited to professional competence and personal independence, not ideologically based. It would be a speedy process of decision making; it would not be time-consuming; it would not be a veto; and it would allow the Government and the House to consider the candidates and come to a view. I submit that that is a powerful case for the reforms set out in new clause 3.
My right hon. Friend the Chief Secretary to the Treasury came to the Select Committee and, in a distinguished, open and candid performance, identified three main arguments against the proposal, although he said throughout that he had an open mind on the matter. He said, first, that their having to come before a Select Committee of the House before being appointed might deter candidates.
Secondly, there were certain political circumstances—for example, a hung Parliament—in which the process might increase instability, rather than promote stability.
Thirdly, the issue of confirmation was of such importance that it should run across a whole range of appointments in public life and would need to be considered by the House; therefore, a decision should not be taken on the Monetary Policy Committee or the Bank until that wider consideration had taken place. I shall deal with each of those points—all of them powerful—in turn.
On the question of a deterrent effect, my right hon. Friend cited the example of John Maynard Keynes and suggested that that distinguished economist might have not wished to serve in public life if he had felt that his personal life might come under scrutiny in a process of this sort. All I shall say on that point is that I believe that we live in different era in terms of the public scrutiny of those who serve the public in a variety of ways, not only Members of Parliament, but public servants more generally.
Most public servants would prefer to have the chance to answer charges directly, rather than to have those charges circulated by nudge and wink or media leak. They would prefer to address the issue straight up, and I believe that, had he been alive today, John Maynard Keynes would have been of that mind. Many potential candidates for the MPC and the Bank—we have discussed this question informally with them—would prefer a state of affairs where there was an open process, open discussion and open accountability, rather than a process that took place behind closed doors. Provided—it is an important proviso—that the Select Committee dealt with the matter in a sensitive and rapid way, rather than following the example of congressional committees, potential appointees, those appointed and the body politic as a whole would all gain from the open process.
The Chief Secretary's second argument was that, in a hung Parliament, a party political ball game would be played in the Select Committee, which would make it difficult for the Government to govern and make those key appointments. I take that point, but, if we are concerned with the independence of the central bank from those party political ball games and the uncertainties surrounding a hung Parliament, it would be better and more effective to use the open hearing process; in addition, there would be no risk of the Prime Minister or Chancellor appointing cronies with no chance for public scrutiny. Therefore, the second argument does not stand up.
The third argument has more substance. It relates to the issue of the wider reform of the relationship between Parliament and the Executive in the matter of key appointments, and contends that it would be better to wait before taking the process forward.
After the Chief Secretary had given his evidence, I tabled a question to my right hon. Friend the Leader of the House to ask what assessment she was making of that issue. She replied that the Government were reviewing the situation, but that they had "no immediate plans" to propose a process of Select Committee scrutiny. If we accept the Chief Secretary's argument, there is a real danger that we will make the best the enemy of the good by saying that we cannot carry out this reform until we have achieved wholesale reform across the board.
In addition, the Bill deals with important issues relating to the Select Committee and the Governor of the Bank which differ from many of the other areas of public scrutiny, so there is a particular case to address.

Mr. Robert Sheldon: My hon. Friend may be aware that the Liaison Select Committee has discussed in general terms the use of this sort of hearing, and in general—I cannot speak for every Committee—supports the view expressed by my hon. Friend the Member for North Durham (Mr. Radice). As this would be the first use made of a particular instrument, it will be important that we have in my hon. Friend a Chairman who not only is distinguished, but would be strong in ensuring that no personal references were made or personal questions asked. We would regard it as the initiation of what could be a useful procedure. I welcome what my hon. Friend has said.

Mr. Clarke: I am grateful to my right hon. Friend for saying that there is general support across Parliament for many of the changes about which we are talking.
I should add that, this morning, the Treasury Select Committee had a discussion on the types of procedure that would be applied. The personal qualities of the Chairman of the Committee, to which my right hon. Friend has just referred, were part of our discussion, because we recognised the need to have a process according to which inappropriate questions would be ruled out, so that we kept to the twin issues of professional competence and personal independence. I agree with my right hon. Friend's expression of confidence in the Chairman of the Treasury Select Committee.
I know that there is a case for wider reform, but I hope that the consideration of such general issues will not lead to us to say that we will not introduce a reform of the type that I have described simply on the ground that those general issues should be considered more thoroughly. I genuinely believe that the reform would enhance the independence of the Bank, as well as the policies set out in the Bill—and, most important, the accountability of key institutions of state to the House.

Mr. Quentin Davies: Before I discuss new clause 1, I should like to respond to the observations of the hon. Member for Norwich South (Mr. Clarke), with whom I have the honour to serve on the Treasury Select Committee. As he rightly said, this morning the Committee discussed the matter in considerable detail.
I listened with some surprise to the hon. Gentleman's statement that, although he supported new clause 3—we are both signatories to that second new clause in the group of amendments under consideration—he could not support new clause 1. Apart from obvious considerations of political tactics, I cannot see how anyone who supports new clause 3 could fail to support new clause 1. As far as I can see, there is only one difference of substance between the two new clauses—new clause 1 provides for an open advertisement selection procedure.
The hon. Gentleman notably failed to address that issue. He did not suggest that he disagreed with it or that there is anything wrong with it, so, logically, I cannot see why he cannot support new clause 1. I would be sorry if he decided he could not do so simply because of the dog-in-the-manger principle that it had been brought forward by the Opposition. That is contrary to the spirit in which the matter has been considered in the Treasury Select Committee. I regret that.
As for the hon. Gentleman's other remarks, I thoroughly agree with him. I would like to think that the issue of the Treasury Select Committee asking utterly irrelevant, prurient questions was a red herring. I would never have raised it, but I am a little sanguine, and there is a genuine concern that the procedures might be abused in that particular way. I have the greatest confidence that Parliament would undertake its responsibilities with great care. Certainly it would do so with as great responsibility as that shown by the Executive branch—or greater—and certainly greater responsibility than the current Executive branch has so far manifested in its conduct of the nation's affairs.
I have no doubt about that, but, since others appear to think that there might be some lingering concern on the matter, there is absolute agreement on the Treasury Select

Committee that, in order to address that possible source of concern, we should, by resolution or otherwise, make it explicitly clear that the questions asked on such occasions would be pertinent ones relating to the competence and independence of candidates. There would be no question of going into people's private lives, sexual behaviour or anything of that kind.
If Maynard Keynes had come before our Committee, I can think of lot of questions that I would have wanted to ask him about his General Theory, but I should not have asked him any interesting questions about his private life.
It is a great pleasure to second the new clause tabled by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), which makes an important contribution to the debate. The confirmatory hearings are important for two reasons.
First, such hearings would be in the interest of transparency, and in the interest of gaining public support for, understanding of and confidence in what was being done. They would help to exclude explicitly all types of theoretical dangers—which, with the present Government, might not be so theoretical—that cronies of Ministers, the Chancellor or the Prime Minister might be appointed to the Monetary Policy Committee. Such a position might be considered a nice appointment for someone to whom political favours were due.
It would be a nightmare if we had Mr. Bernie Ecclestone on the Monetary Policy Committee. It would be an even greater nightmare—if such a thing is possible—if we had someone who was simply a nominee of Mr. Rupert Murdoch, of whom the Prime Minister, in his conduct of monetary policy, has already shown that he is terrified.
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Sadly, these possibilities are real, not hypothetical, and it is not a bad idea to use explicit provisions to protect the public and our institutions from them. Confirmatory hearings represent a check and a balance—an additional assurance to the country that such decisions are made objectively, as dispassionately as is possible in human affairs. That is the purpose of checks and balances, which are the basis of public confidence in a democratic constitution.
There is a second, more pragmatic and, indeed, monetary reason why it would be sensible for the Government to accept new clause 1—but the Government do not often do very sensible things, so I do not expect that they will do this now.
The new clause will make it easier for the Government to achieve what they say was their prime purpose in making the Bank of England operationally independent. The main purpose of doing so was to give the markets confidence that monetary policy is being conducted in accordance with monetary criteria, to achieve the monetary purpose of price stability—the permanent removal of inflation in our national affairs—and is not subject to political, personal or electoral pressures according to the day-to-day convenience and self-interest of Ministers.
The world is changing. As a result of one of the salient changes, almost every civilised country now has an independent central bank. It would be an enormous


liability for our country if, of the major currencies of the world, only sterling was managed in such a way that it was seen to be subject to extraneous party political or electoral pressures. In those circumstances, all holders of assets in sterling would demand what would probably be a very significant premium: a risk premium for holding such assets, given the uncertainties created, the hostages to fortune represented, by the existence of those pressures on the conduct of monetary policy.
We are already paying such risk premia. The taxpayer is paying 1 per cent. more to service British Government debt, gilts, than the German taxpayer is paying to service German Government debt. That has nothing to do with the inherent creditworthiness of the British or German Governments; it results from the monetary uncertainties associated with holding sterling—the risk of devaluation, the risk of inflation, which are perceived to be greater here.
A lot of money is involved. Public debt in this country is about £350 billion. One need not be a mathematical genius to know that 1 per cent. of that is about £3.5 billion, or roughly 2p on the standard rate of income tax. I believe that that is the price of the Government having been extremely indecisive about, for example, what we are doing about monetary union.
It is very important that the independence of the Bank of England should, as far as possible, achieve some certainty that monetary policy is not subject to party political and electoral pressures. As the hon. Member for Bolton, West (Ms Kelly) said, the announcement of the operational independence of the Bank of England has had some positive effect in terms of the premia we pay in the money markets and in the Government bond markets at present. We still have a long way to go, and it is important that operational independence is regarded as credible, domestically and internationally.
An announcement by the Labour Government that the Bank of England has been given operational independence, that monetary policy is henceforth in the hands of the Monetary Policy Committee and that that committee will be answerable for monetary policy not to the Chancellor but to Parliament through the Treasury Committee sounds wonderful. It appears that that arrangement will go quite a long way towards achieving the declared purposes of the move.
However, a slightly closer reading of what is occurring reveals that the members of the Monetary Policy Committee are appointed by the Chancellor. Furthermore, there are no checks and balances upon his decisions. No one is in a position to second-guess or query any appointment: the Chancellor's appointment decisions are entirely arbitrary.
Thirdly, as my right hon. Friend pointed out so ably, members of the Monetary Policy Committee are appointed for only three years. Therefore, members will be up for reappointment within the term of this Government and, if they want to stay on the committee, they had better be nice to the man who appoints them. It does not take a great deal of human intelligence to lead one to discount to a considerable degree the independence of a central bank whose Monetary Policy Committee is appointed on that basis.
In order to achieve independence, to reap the benefits of monetary credibility, achieve a positive impact on inflation expectations in this country—that is vital in

terms of savings behaviour, wage negotiation, general price determination behaviour and so on—and to ensure that the cost of capital in this country is no higher than we need and that we do not have to pay excessive risk premia in the markets, we should welcome any measure that is designed to strengthen the credibility of that independence. The Government have been presented with a wonderful opportunity to do just that.
It will be no skin off the Government's nose if they accept the proposal. The idea was conceived and developed by a Committee of the House upon which the Labour party has a considerable majority. If the Government do not accept the proposal, we can draw only one of two conclusions—I leave it to you, Madam Speaker, to the House and to the public to decide which is more damaging to the Government.
The first is that the Government are playing this—and one assumes, by extension, other equally important affairs of state—on a purely party political basis. It is a matter of party political ego and face. The Government are not interested in acting in the interests of the country, and they are not being open-minded in their consideration of the national interest: they are concerned merely with gaining party political points. They refuse to accept any proposal that has the Leader of the Opposition's name upon it.
The second alternative—I invite the Chief Secretary to confirm whether there is a third, fourth or fifth logical possibility, but I do not think there is—would realise my worst fears: the Government intend to abuse the power of appointment. They secretly think that it represents a wonderful additional power of patronage, and might be a way of rewarding Mr. Bernie Ecclestone, of conciliating Mr. Rupert Murdoch or of allowing other squalid people to get their hands on the levers of monetary policy in this country for their own purposes.
I do not necessarily claim to be correct, but I can perceive only two logical explanations if the Government act as I hope they will not, and refuse to accept the new clause that contributes positively to the declared purpose of their legislation. If I am wrong, I challenge the Minister to explain why that is so, and to persuade the House in that regard.

Mr. Giles Radice: I apologise to the right hon. Member for Wells (Mr. Heathcoat-Amory) and to the House for not being present at the beginning of the debate. I have just returned from the funeral of a close family friend.
The Chancellor wrote to me, as Chairman of the Treasury Committee, after announcing the operational independence of the Bank of England in the area of monetary policy. In that letter, he suggested an enhanced role for the Committee in examining the performance of the Bank, and wrote:
I see this as an important step in ensuring that the Bank is fully accountable.
The Committee has already taken several steps to develop our role in making the Bank accountable for its decisions. We produced a report on accountability, the Government's reply to which was published today and placed in the Library. We also conducted hearings following the November inflation report and recently decided to hold another hearing after the February inflation report. We shall keep the Bank under constant vigilance.
Our report concluded that it would help to strengthen accountability—it would be the final brick—if we had a part in endorsing appointments and reappointments to the Monetary Policy Committee. It is essential that the members of the committee should be seen to be competent when they are appointed; effective when they are reappointed; and independent of the Government. They must be independent people who have the necessary competence to carry credibility as members of the committee.
My hon. Friend the Member for Norwich, South (Mr. Clarke) may have covered the matter in his speech, but at the risk of repetition I shall say that our model in new clause 3, to which Opposition Members have signed up, is rather different from that in new clause 1. In essence it states that, within 30 days of a nomination, we should be able to report to the House. Either we would approve the competence and independence of the members of the Monetary Policy Committee, or we would give reasons for considering that members of the Monetary Policy Committee do not meet the criteria, and we would ask the Chancellor of the Exchequer to reconsider their nomination.
I emphasise that we are not seeking a veto. That is all very well in the United States—in a democratic system with the separation of powers—but it is not appropriate in a parliamentary system. Following a request by the Treasury Committee for reconsideration, the Chancellor would have to give reasons for continuing with the nomination of the person whom he wanted to have appointed or reappointed to the Monetary Policy Committee. That is a good model and should receive the Government's support.
My right hon. Friend the Chief Secretary to the Treasury, whose abilities I greatly admire—[Interruption.] If my right hon. Friend listened, he would hear that I was complimenting him before refuting his arguments. He has said that he has an open mind, but he has raised counter-arguments, with which my hon. Friend the Member for Norwich, South was dealing when I came into the Chamber.
My right hon. Friend claimed, first, that our proposal would put people off, but all the members of the Monetary Policy Committee to whom I have spoken believe that it would be helpful for them, for two reasons: first, it would establish their independence; and, secondly, it would establish their profile as members, so that they could explain why they thought they were the right people and what kind of job they expected to do. That would be good for the Monetary Policy Committee and would strengthen it.
My right hon. Friend's second argument is more substantial—that we should take a broader look at the issue because if the Treasury Committee is given a special place in legislation, every other Select Committee will want to have a place in legislation for appointments to the Department that it oversees. I understand that, but I would argue that the Bank of England is an exceptionally powerful body with an exceptional position, and for that reason, exception should be made.
I hope that the Government will accept our new clause tonight, but, whatever happens, I want to make it clear that the Select Committee has decided to go ahead with

the confirmation procedure. We shall present a report to the House on the procedure that we shall follow. If the procedure is to be effective, it must be consistent. The procedure must be laid down, and we must always go through it. We must be fair to the candidates who come before us, and we must stick to the issues of competence and independence.
It is no secret that we were discussing this morning the possibility of allowing the Chairman to rule out any extraneous issues—for example, the sex life of John Maynard Keynes would not be relevant in deciding whether Maynard Keynes was competent or independent. We must satisfy the House of Commons and the general public that we can do the job properly, as I believe we can. We shall report to Parliament on the procedure that we shall adopt, and we shall go ahead with confirmation hearings throughout this year.
Whatever happens tonight, the confirmation process will go ahead and will become the norm, at least for Bank of England appointments. That will be good for the Government, because we will see that they are not trying to appoint people to the Monetary Policy Committee of the Bank who are not competent or who are creatures of the Government. It will be good for the Bank, as it will underline its independence, credibility and competence. It will be extremely good for Parliament, as it will bring Parliament into the equation, and it will therefore be good for our democracy.

Mr. Nick Gibb: The new clauses go to the root of the reason for my opposition to the Bill. They go to the root of the accountability of the new Bank of England.
Monetary policy is not an exact science. The Chancellor of the Exchequer, who is accountable to the House, will determine the inflation target, but the translation of the inflation target into monetary policy is incumbent on the Monetary Policy Committee. The Government seem to believe that they simply need to set an inflation target and throw a bunch of experts into a committee, and that, as if by magic, those experts will come up with the correct interest rate policy to translate that inflation target into reality.
The report of the Treasury Committee, a learned tome, provides ample evidence to support the view that that is not the case. Sir Samuel Brittan stated:
Both the Chancellor and the Governor greatly overestimate the role of technical expertise.
He continued:
Monetary economics is not a hard science. An attempt to confine the Monetary Policy Committee mainly to so-called experts will simply enthrone the conventional wisdom of the moment.
In his evidence to the Select Committee, Tim Congdon wrote:
Two main schools of thought on the monetary situation can be identified,
—economists (the National Institute, narrow-money monetarists such as Sir Alan Walters and Professor Patrick Minford) who believe that the rapid growth of the money supply since early 1995 is of no relevance to the economic situation, and that the over-valued pound and the recent rise in interest rates…may cause a recession in late 1998 and 1999".


That school of thought must be contrasted with the views of another group:
—economists who believe that the rapid growth of the money supply, on the broad definitions"—
rather than the narrow definitions—
since early 1995 is not only the main reason for the current buoyancy of demand, but will cause continued above-trend growth in late 1997 and early 1998, with inflation rising thereafter.
Lord Eatwell told the Treasury Committee:
Moreover, there is a tendency in monetary policy matters to regard certain propositions as 'obvious' and anyone who questions such propositions to be at best a nit-picking academic and at worst a crank. Yet the notion that the theory of monetary policy is 'obvious' and 'pragmatic' is belied by the fact that the theory and practice of monetary policy has undergone quite radical revisions over the past 20 years.
He went on to ask:
If views held 10 years or 15 years ago were so obviously right then, why are they so obviously wrong now?
That is the very essence of why we need to consider further and crucially the appointments to the Monetary Policy Committee.
There are all kinds of views. There are broad and narrow monetary policy views, Keynesian economics and the economics of those who wish to stick to the gold standard. The views of the members of the Monetary Policy Committee are pivotal in determining Britain's monetary policy. I was surprised by the remarks of the hon. Members for Norwich, South (Mr. Clarke) and for North Durham (Mr. Radice) that, when the Treasury Committee comes to question members of the Monetary Policy Committee in its confirmatory hearings, they will not want to discuss their ideological or economic views, but will solely consider competence and independence. Unless the Government set down beforehand a set of criteria for determining the economic views that are to be represented on the Monetary Policy Committee, it is important to know the views of its members.
If the Treasury Committee considers merely economic competence and independence, the monetary views of the members of that committee will be determined by lottery. If one happens to pick four economists with narrow monetary views, that will be the committee's make-up.
I put that point to the Paymaster General in Committee and he said:
The hon. Gentleman asked me to list a set of criteria for prospective members of the Monetary Policy Committee. We cannot do better than the qualities for which current members have been chosen. However, the two most important qualifications are outstanding intelligence, for which there is no substitute, and a demonstrable economic knowledge. Those are the essential criteria, but all sorts of other matters must be considered. However, it would be inappropriate to delay our proceedings with them.
I think that it is important to delay our proceedings with them, which is why I intend to do so today.
If the criteria are not provided, how will the Monetary Policy Committee be made up? What criteria will determine its prevailing point of view? In Committee, the Paymaster General, speaking of me, said:
He wants to ensure that the good balance that currently exists in the Monetary Policy Committee is maintained. He is anxious to exclude serendipity and random choice from our selection process. I assure him that such elements will play no part in it."—[Official Report, Standing Committee D, 27 November 1997; c. 166.]

But the Government have given us no idea of how serendipity and lottery will be prevented from determining the prevailing point of view of the Monetary Policy Committee.
The Treasury Committee is determined that the committee's membership will be scrutinised. The Government, in their vast exchanges of correspondence with the Governor and the Chairman of the Select Committee, which seems at the moment to be determining Government policy, said that accountability is of the essence. The Chancellor of the Exchequer, in his letter of 6 May, says:
The Bank of England will make reports to and give evidence to the House of Commons, through the Treasury Select Committee on an enhanced basis, and I will write to the Chairman of the Committee.
When that letter to the Chairman came, it said:
Given its responsibilities, I believe that it is important that the Bank should be subject to enhanced Parliamentary scrutiny, in particular through your Committee. I am writing to suggest … an enhanced role for that Committee.
The Government see a role for the Treasury Committee. The Treasury Committee has an enormously important role in determining the ideological make-up of Britain's future monetary policy. Given that the Government see the Treasury Committee as paramount in ensuring accountability of the Bank of England—the Government accept that the Treasury Committee will be the only method of parliamentary accountability for the Bank of England—and given that the Treasury Committee wants to undertake confirmatory hearings, is it not beholden on the Government, under their own criteria, to give the Treasury Committee statutory responsibility to conduct confirmatory hearings?

Mrs. Fiona Jones: I am grateful for the opportunity to make my maiden speech today in a debate on the Bank of England Bill. The Bill paves the way for a framework of stability, vital to economic growth, which we need to provide opportunity. I shall comment on the new clause in due course.
I take some pleasure—I am sure that hon. Members will sympathise with my desire—in relinquishing the somewhat unlikely title of virgin. As someone who has reached the age when life apparently begins and has accumulated two children along the way, it seems remarkably ill-suited. I had expected during the course of a career in politics to be called many things and have experienced more than the odd colourful insult. However, taking into account the over-zealousness of some journalists, and the occasional lapse in attention to fact on the part of most newspapers, I still had not expected the accusation in question.
Having endured through gritted teeth being dubbed a "Blair's babe", I am grateful at least to have the opportunity to relinquish for ever the title of being the last virgin in the House. However, a right hon. or hon. Member who has hitherto remained secretive may now wish to claim the title. No doubt confessions to the press will be eagerly awaited.
I am proud to make this contribution today at the beginning of the first full year of a Labour Government for almost two decades. We have the important task of laying solid foundations both economically and in terms of the way in which we shape society. What we do in this


year and in the coming years will shape our future in the new millennium. The Government are setting policy to ensure long-term prosperity. We must ensure stability in monetary and fiscal policy as a precondition of high and stable levels of employment and growth.
My constituency has suffered many economic blows in recent years. It is vital for the people of Newark that we achieve the conditions necessary for industrial expansion. The constituency of Newark is in Nottinghamshire. As well as the town of Newark, which was besieged by parliamentary forces several times during the civil war, the constituency includes the smaller but equally pleasant market town of Retford. At the constituency's western extremity is the historic Southwell dominated by its imposing minster. In addition, there are a number of hamlets and villages between the main centres, stretching from the Lincolnshire border to Robin Hood country to the west.
My constituency has suffered for many reasons in recent years. The rundown of the mining industry was a great blow to many local families who had, for generations, made their living in the pits. The area has also lost many jobs in engineering over the years and sadly now the agriculture industry is not without its problems and many farmers, particularly on family-sized farms, are in a desperate position.
However, the area has good road and rail communications and, thanks to the enthusiasm and skills of local people, new businesses are growing up in the constituency, particularly in food processing and in the pine industry. That growth now requires a platform of long-term economic stability on which to build.
It is customary at times such as this to thank one's predecessor, and I do so with genuine sincerity. Richard Alexander represented Newark for 18 years. He was well respected by his constituents, and by his local party, which in itself is quite an achievement. I well remember Richard Alexander's determination and courage when he took a stance against pit closures because he felt that they would do so much damage to the economies of constituencies such as Newark. Richard Alexander was committed to public service and I sincerely hope he finds some way of continuing that service in the future.
Today, Newark boasts a hostelry called the Lord Ted. It was given its name in recognition of another of my predecessors, Ted Bishop, later Lord Bishopston. Sadly, Ted is no longer with us, but his family took great delight in my being returned as the Member for Newark, because he was a great campaigner for women's rights and equality, long before it became fashionable to be so. I understand from his family that he would have been greatly pleased to see a woman representing Newark, and to see so many women Members in the House—although whether he would have been inclined to call them "babes" is a different matter.
Continuing on the theme of my predecessors, undoubtedly the most famous was William Gladstone, whose first seat was Newark. Hon. Members will be pleased to hear that I do not intend to speak for five hours, as Gladstone did during his Budget speech in 1853.
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In addition to sharing the privilege of representing such a fine constituency, Gladstone and I share a common birthplace, for we were both born in Liverpool. I grew up in comfortable but humble surroundings on a typical Liverpool housing estate. My family were committed to the Labour movement. That was in many ways fortunate because it meant the poverty that I witnessed did not make me despondent but inspired me instead to contribute to finding a political solution, to put hope and opportunity in place of deprivation and misery.
In poor families everyone suffers, but women—especially mothers, who face the day-to-day challenge of putting food on the table for a family—are particularly ground down by the pressures of life. They become old before their time and experience little pleasure in a stressful existence. Everyone has a right to more than that.
As a youngster I learnt my politics from two people: my father, who, like many others, joined the movement in 1945 believing that we could indeed change everything, and his friend, our then local Member of Parliament, Eric Heffer. They were bound in friendship by their strong belief in compassion for others, Christianity and socialism. I am for ever grateful for their influence.
The Labour Government elected in 1945 achieved much but left much unfinished business. Together with the job of modernising their accomplishments, that leaves the current Government with a formidable task. We need to achieve an environment that makes everyone—no matter how poor, disabled or down-trodden by their circumstances, by their life—feel that when they open their front door somewhere outside is an opportunity for them. We must reform and modernise the welfare state, but those reforms must empower those who are able to do so to attain the goals of which they are capable, while allowing those who are less able to live in comfort with respect. Socialists expect nothing less from a Labour Government.
When asked about political issues, the President of a country some distance from here, anxious to exhibit the depth of his political knowledge, remarked, "It's the economy, stupid." Indeed, the economy is the cornerstone on which every nation must base its future aspirations. Without a successful and vibrant economy, we cannot provide hope, opportunity or, indeed, welfare. The Government have made it clear that we want a stable and competitive pound over the medium term. Economic stability is critical for business, and that encompasses low inflation, which has to be delivered. By charging the Bank of England with operational responsibility for setting interest rates to meet the Government's objective, a more credible framework for monetary union has been established.
I now come to the clause that we are considering. I have a reservation about the relationship between Select Committees and the Government. Although I accept entirely that there is a consensus in the House that there must be accountability at all levels, I am very concerned that we should allow a Select Committee to take on this responsibility in isolation. If Select Committees are to go in that direction, it cannot be done in isolation.
It is interesting that hon. Members mentioned John Maynard Keynes. Over the past decade we have heard much about why so-called fat cats should be paid so much money and have so many advantages in terms of cars and


houses. It makes me wonder whether we will be able to attract anybody to come before the Select Committee and be interrogated.
It may be appropriate for me to thank hon. Members for their patience. It is certainly appropriate for me, on behalf of all the new Members who have made their maiden speeches in the past months, to thank the experienced Members of the House, who have sat through many speeches with much patience and good humour.

Sir Peter Lloyd: I am delighted to follow the hon. Member for Newark (Mrs. Jones), and congratulate her on her maiden speech. I greatly enjoyed listening to her and, judging by the cheer that she has just had from the whole House, everybody in the Chamber did too. I agreed with much of what she said about new clause 1, but I particularly enjoyed listening to her obvious positive concern about her constituency.
Newark is my wife's home town. She retains an enormous affection for it and, over the years, through many visits, I have come to share her affection, so the hon. Lady is extremely lucky—[Laughter.] Well, that is true as well, but the former came first. The hon. Lady is very fortunate in her constituency, and from the way in which she spoke, her constituency is lucky in her.
I thank the hon. Lady for her kind and generous remarks about her predecessor, Richard Alexander. He was, indeed, an excellent constituency Member and he was a great friend of many of us on both sides of the House—a friendship that he built up in his quiet and effective way during his 18 years in the House. We miss him very much. Although it is nice to welcome the hon. Lady, we regret that he is not here, and we are glad that she has put those remarks on record so that we can all share them. We wish the hon. Lady a very successful and happy career in the House, and we certainly look forward to hearing her speak again.
I shall make a few discordant remarks about new clauses 1 and 3. As a member of the Treasury Committee, I voted against the recommendation that is now encapsulated in the comparatively pussycattish new clause 3. For the same reasons, I do not support the rather more tigerish version that is new clause 1. I shall say briefly why. I fear that any vetting for professional competence will be superficial and will inevitably sound rather pompous. What will the Select Committee do to test competence? Will it count the number of degrees that the candidate has, assess his or her performance in previous jobs or evaluate the learned papers that he has published? The Select Committee is not well placed to do any of that and it should not try.
How will the Select Committee vet independence? Will it look to see whether the candidate is an old friend of the Chancellor or shadow Chancellor? What is the difference between—to use words that were used earlier—an old friend and an old crony? I do not know. Will the Committee check for whom the candidate has worked? Will there be a character assessment? Would holding strong views pro or against economic and monetary union, or firm monetarist convictions, be seen as limiting the candidate's independence? Some might think so. I do not, but it is arguable, and from some of the things that have been said this afternoon, others think so, too. If the vetting procedure is to be just a formality, those questions do not matter, but then why bother with the process at all and take up everybody's time?
If the procedure is to be genuine and serious, the Select Committee will have bitten off a harder task than it suspects. I fear that candidates with good, conventional academic records, who do not know anyone and who have no strong opinions on the economy, will be better placed than others who do. Moreover, I suspect that some good candidates who value their privacy may not want to put themselves in the way of public procedure that can delve into their career and character.
Candidates certainly should not be asked, as the hon. Member for North Durham (Mr. Radice), the distinguished Chairman of our Select Committee, suggested, to explain why they should be appointed to the Monetary Policy Committee. That is a matter for the person who appoints them—the Chancellor of the Exchequer.

Mr. Radice: My colleague on the Treasury Committee must have misheard me. I said that there were two issues: competence and independence. I said that those were paramount and that any other issues were extraneous.

Sir Peter Lloyd: I am sorry. I thought that the hon. Gentleman welcomed the chance for candidates to explain why they should be appointed. I accept his explanation and I am sorry that I did not follow his remarks accurately.
Hon. Members and candidates may have nothing to worry about on that score, given the sensible and sensitive members of the Select Committee, particularly under its current chairmanship. What benefit is there, however, in opening the way for future Committees—and other Select Committees, if some hon. Members have their way and the provision is extended throughout the Select Committee system—to behave as some congressional committees are said to behave in the United States? The right way in which to proceed is to extend the public appointment rules drawn up for quangos to all public bodies. If an appointee is unsuitable for any reason, including lack of independence or competence, or is manifestly not up to the job, the Committee and the House have it in their power to call the Government to account and they should certainly do so. Vetting would not make the Monetary Policy Committee any more accountable; if anything, it would make the Chancellor more accountable.
Even if, however, we could devise a system of vetting that avoided all the pitfalls, we should not institute the vetting system called for in the new clause. It is the job of Select Committees to get answers to their questions from the Government, and to throw light on Government policy so that Parliament and the public are better informed. Their job is to probe what has happened, to reveal shortcomings and to make recommendations for improvement. They will do that more single-mindedly if they eschew all direct involvement with Executive decisions, and appointments are one such.
It may not be a very significant point, but why should the Select Committee approve appointments? It would then have an interest, however slight, in seeing its competence justified. It should hold its fire until the appointments—which are better made by the Executive with more information to go on—show cause for criticism or praise because of what the appointees do or fail to do.

Mr. Austin Mitchell: I, too, congratulate my hon. Friend the Member for Newark


(Mrs. Jones). I do so for two reasons. First, after the 1983 election, I was the only Labour Member in a long line right down to London, so it is good to have socialist neighbours all around. Secondly, I congratulate my hon. Friend on her interesting and entertaining speech. She has no need to worry about her future in this House, given her ability to speak like that. Nor should she worry about being the last virgin. I remember Doris Day before she was a virgin. The endless reconstitution of virginity is part of the processes of this place.
I shall speak briefly on this issue because I want to speak at greater length on the official old Labour amendments later. New clause 3 is very much a new Labour issue; indeed, it is so new Labour that it has support from the Opposition, including from the Liberal Democrats, which makes me think that it must have something to do with Europe. I support it because we should have the kind of hearings mentioned in it. I am surprised that the Government have not conceded that, and that a new clause was necessary.
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Such hearings, however, are not enough. As my hon. Friend the Member for North Durham (Mr. Radice) said, the Select Committee will be concerned with competence and independence, but it should also be concerned with a third factor—the appointees' views. I have taken that into account in amendment No. 28. We must accept the fact that appointees to the Monetary Policy Committee are appointed by the person who also appoints members of the Treasury Committee; Labour members of that Committee are, in effect, appointed by the Chancellor of the Exchequer. No man or woman cometh to the Committee except through him, and nobody that he does not want goes on the Committee; we need only witness the fate of my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott).
One set of Chancellor's appointees will look at another set of Chancellor's appointees. The information that comes out of that process needs to be known more widely because monetary policy is not an exact science. It is no use pretending that there is a judicial body that can approach the issue with independence of mind and say, "Ah yes, we can agree on these matters." Monetary policy is not a science at all; it is a collection of prejudices dressed up in Savile row suits, and the prejudices are different for each member.
I was surprised to read in The Observer that two members of the Monetary Policy Committee do not appear to be British. What central bank of any other European country would appoint foreigners to such a crucial committee? We need to know those appointees' views on monetary policy. I know the views of one of them, who is a Dutch professor, because he gave evidence to, and advised, the Treasury Committee, but I do not know the views of the other appointees. The House needs to know so that we can make our own judgment about them. That should be public information. There needs to be open government so that we know what is going on.
I tabled amendment No. 34 because I want directors appointed on a regional basis. That does not mean that we should follow the example of health authorities, which can appoint people of a certain party political persuasion,

as the previous Government did on a considerable scale. We want people who come from the regions rather than from the central nexus of finance that dominates the City of London and the directors of the Bank of England.
This country's wealth was first generated in the regions. The north and the midlands are the home of manufacturing industry, which has been badly dealt with by the financial world. In seeking to develop a raunchy economy, it placed a higher premium on investing overseas than on investing in this country; it placed a higher premium on investing in trade and commercial wealth than on manufacturing and industrial wealth. Even now, manufacturing industry is being badly dealt with as a result of the dominance of London. For instance, when measures are taken to increase interest rates, it is usually because of pressures in London.
Inflation pressures are always higher in London because of the number of people and the cost of property there. Pressure on inflation is generated by finance—the high salaries paid in the City of London by financial bodies—and by the loose credit created by finance. That leads to asset and house price inflation, which is always higher in London than in the rest of the country. When that is damped down, it is for London reasons—because the pressures have become too strong in London. The north has not felt the same benefits from expansion, and has not had the same economic stimulus. It has been hit harder than London and the south-east, where the problem has been caused.
Manufacturing is on the international front line and must compete with overseas companies. The rise in interest rates that has inevitably resulted from the London pressures has hit manufacturing harder than any other sector of the economy. It has been clobbered because of inflationary pressures generated by finance in London.
Decisions on interest rates are taken or influenced by the directors of the Bank of England. That is why I want a regional representative who can speak for the regions. We now have a Government who can speak for the north—perhaps too far north for my liking—more effectively than the previous Government. We need a Bank of England that can speak for the regions on jobs, industry, manufacturing, competitiveness, growth and expansion. The problems in the north are more severe, and the Bank should provide the voice of the regions.

Dr. Vincent Cable: The Liberal Democrats support new clause 3 and new clause 1 which, despite its authorship, is a constructive amendment designed to achieve the same thing as new clause 3, but in a slightly different way. We also support amendment No. 34, tabled by the hon. Member for Great Grimsby (Mr. Mitchell), which introduces a regional dimension; that has been overlooked in the debate, but it is important. I add my congratulations to the hon. Member for Newark (Mrs. Jones) on her excellent maiden speech. Our party requires us to study Mr. Gladstone's speeches as part of our political education. The five-hour speech to which she referred was probably one of his shorter ones. He was the gentleman who, more than a century ago, introduced income tax as a temporary measure. This measure is historically as important.
We support the legislation in principle. It was introduced as a result of a rush of blood to the Chancellor's head, but there is nothing wrong with that.

Mr. Quentin Davies: The hon. Gentleman said that he and his colleagues were brought up to study Mr. Gladstone's speeches. Has he learnt anything from that study? Have the Liberal Democrats relearnt in the 1990s the virtue of financial responsibility, good housekeeping, balanced budgets and lowering taxes?

Dr. Cable: If the hon. Gentleman had read our manifestos, he would realise that we have thoroughly imbibed the thoughts of Mr. Gladstone. Indeed, we hope that the Bill will be followed by a fiscal responsibility Act, of which Mr. Gladstone would have approved.
The legislation was introduced after the Chancellor's sudden rush of blood to the head. The Government have now had eight months to think about it and to listen. We hope that they will now reflect on the detail. It is crucial that the legislation works. The independence of the Bank of England is a good concept, and we agree with it in principle. However, this measure is not guaranteed to work, and whether it does will depend on its design; its design depends critically on credibility. The two key elements of the legislation are designed with credibility in mind. Making the operational management of money supply independent of politics is one element of credibility, and the other is the separating of the regulatory functions from the control of money supply to prevent cross-contamination. Problems that arise from regulation, such as BCCI-type problems, affect the credibility of monetary authorities. It is difficult to legislate to provide credibility, but that is at the heart of the Bill.
The new clauses are designed to address the problem of credibility through the system of appointment. It is fair to say that the Government have been highly responsible and balanced in their appointments; they were not political, and competent people have been chosen. This legislation must survive the test not of years, but of decades. We have no guarantee that future Governments will be as responsible in their selection, and will not choose cronies or incompetents.
It is worth reflecting on the language of the clause that establishes the appointment process. It is couched in broad terms, and states:
The Chancellor of the Exchequer shall only appoint a person under subsection (2)(c) if he is satisfied that the person has knowledge or experience which is likely to be relevant to the Committee's functions.
There must be several hundreds of thousands of people who could satisfy that clause. It is crucial to build in some control over how that process operates.
The Select Committee process was ably debated by the hon. Member for Norwich, South (Mr. Clarke), and it is worth reflecting on some of the points he made. He dealt with the Chief Secretary's first objection, which was that competent people would be put off if they had to go through a scrutiny process and be exposed to the light of day. In the past few weeks, we have had a good example of that. One of the members of the monetary committee has been subject to an extremely scurrilous campaign in a national newspaper. It would have been much better for her and for the whole process if the issues had been discussed properly through an open, transparent process.

There is no reason why members of the monetary committee should be protected from public scrutiny; like us, they are well-paid, public figures. Nor should such a process be conducted secretly and covertly. The right hon. Member for Ashton-under-Lyne (Mr. Sheldon) has already dealt with the constitutional aspects. Many of the objections raised to new clause 3 and, by implication, to new clause 1, have already been dealt with effectively.
The amendment to provide regional balance tabled by the hon. Member for Great Grimsby is important and has received very little attention. Most of the successful independent banks have relied heavily on regional independence. The directors of the Federal Reserve bank, as opposed to its members, are drawn from the states of the United States and, as a result, have independent constituencies. The Bundesbank council has greater strength owing to the fact that it is drawn from the Lander. There is an argument for a regional dimension in this country. I am surprised that the Government, whose Treasury Front-Bench team is 60 per cent. Scottish, have not spotted the fact that macro-economic policy has a distinct Scottish dimension. The Chief Secretary will know very well that the mechanisms in Scotland, which is an oil economy, are different from those in the rest of the United Kingdom. Interest rates affect Scotland differently from England because the balance of house tenure is different. That aspect should be built into the Bank's considerations, and the hon. Gentleman's proposal is one way in which to do that.
The Liberal Democrats strongly support the basic principle of independence of the Bank of England. We support the concept that the Government have introduced, although we regret that they have not been more flexible over some of the amendments designed to improve the Bill. We shall support the new clause when it is put to a vote.

Mr. Jim Cousins: I congratulate my hon. Friend the Member for Newark (Mrs. Jones) on her maiden speech. As a frequent user of the east coast main line, my knowledge of Newark and Retford is regular, frequent but rather fleeting. She filled in many of the gaps that I missed as I shot past. She emphasised the importance of roots and convictions, and we should all take that greatly to heart. She mentioned that Newark had had a bad time in the civil war. Newcastle had a worse time, because in 1644 it was besieged for several weeks, and was finally captured by the Scots. I mention that episode because it has a certain relevance to the debate. Any discourtesy to the Chief Secretary will be balanced by the fact that my hon. Friend the Member for Great Grimsby (Mr. Mitchell) can rest assured that some of us hold out against the Scots on occasions that are not always lost in history.
We are discussing serious and important issues. The Bank of England Bill is as much a constitutional as an economic Bill. It exchanges secrecy for openness, and it exchanges the illusion of a control that was never really exercised for the reality of an important debate about how the economic management of the country is to be carried out. In a sense, that is the test of the new clauses and amendments.
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I welcome the amendments tabled by my hon. Friend the Member for Great Grimsby. We should try to ensure fair representation of regional and industrial interests on the Monetary Policy Committee through proper scrutiny of its members. Although I doubt that a quota could be provided for sensibly in statute, the exercise of accountability among members will make it possible to keep such matters in mind.
I am afraid that I disagreed with my colleagues on the Treasury Select Committee. I did not take their view that periods of service on the Monetary Policy Committee should be longer than those proposed by the Government. Any danger of cronyism will soon be exposed: it will not survive scrutiny. That is not the danger. In financial affairs, a much greater danger is that a club of good old boys—and, for that matter, girls—will be established, that those people will be able to hold office for far too long and that their habits will become altogether too cosy. I am therefore glad that the Government have decided on short terms of service.
New clause 1 is at the centre of the debate, and I have listened carefully to what has been said about it. As a member of the Treasury Select Committee, I wanted the House to have an opportunity to discuss it: that is why I supported the proposal in that Committee. It is important for us to wrestle with constitutional innovations, and to consider ideas such as that of confirmatory hearings. I have also listened to what the Government have said, however, and they have by no means closed their mind to the possibility of statutory confirmatory hearings at a later date.
I understand—this is expressed clearly in the Government's response to the Treasury Select Committee report—that the Government are looking to the Select Committee. I understand that they are encouraging the Committee, albeit cautiously, to experiment with confirmatory hearings with regard to members of the Monetary Policy Committee. Certain issues cannot be overlooked. The hon. Member for Grantham and Stamford (Mr. Davies) speculated that a member of that committee might have had connections with Rupert Murdoch. Rupert Murdoch is a business man with a substantial empire; it is entirely possible that a member of the MPC appointed in the future may, at some point in his or her career, have had a business connection with him. Would it be appropriate for a confirmatory hearing to explore that and make something of it? Not necessarily, surely. Good judgment is involved here.

Mr. Quentin Davies: I am sure that the hon. Gentleman listened carefully to what I said, but what worries me is not that an individual might have worked for Mr. Murdoch at some time. As the hon. Gentleman pointed out, Mr. Murdoch's empire is so extensive that it might be difficult to complete a career in certain spheres—especially journalism—without working for part of that empire at some point.
My fear is that a person of that kind might be able to influence a Government to appoint a certain person. A deal might be made, for instance, whereby a Murdoch nominee would be appointed and the Government would be given a better run in The Sun. That is the sort of

legitimate concern that Parliament should bear in mind if there is any suggestion of extraneous influence on the Government in the appointment of members of the MPC.

Mr. Cousins: 1 might have known that that would be a long intervention.
The rather po-faced way in which the hon. Gentleman made his intervention is entirely contradicted by the lip-smacking glee with which he introduced the subject of Rupert Murdoch in the first place. The Government are properly concerned about the issue. For a brief period in her career, a member of the MPC served with the American Central Intelligence Agency. We can all imagine what irresponsible people could make of that at a public hearing.
The Chairman of the Treasury Select Committee, my hon. Friend the Member for North Durham (Mr. Radice), has made it clear that the Select Committee wants to experiment, and to demonstrate to both the House and the public that we, as a group of parliamentarians, are capable of engaging in these tasks properly and responsibly. I think that the Government are entirely right to leave it to us to demonstrate the worth of their proposal, and to enshrine it in statute only after we have done so.

Mr. David Ruffley (Bury St. Edmunds): I support new clause 1. It is important, because it introduces a check on over-mighty Executives who could—as Opposition Members have pointed out—use their power to appoint members of the MPC to install cronies, and to use that body as a political instrument, or a political wing, of the Treasury. In other words, it would not in any sense be independent.
In Committee, that argument was said to be wrong for two reasons. Labour Members said, "We are not going to appoint political cronies; we have not done so thus far." They pointed out that the MPC currently included individuals who were not in any way political, and that the City considered that its current composition was fine and above board. That, however, implies nothing about what the Chancellor of the Exchequer, or other Treasury Ministers, may wish to do in the future. Opposition Members think it perfectly possible that the wily and cunning Chancellor may indeed use all his skills of spin and underhandedness to manipulate all sorts of activities in the new MPC and the new Bank of England. We are worried about what may happen in the future without a measure such as new clause 1.
The second reason for suggesting that there would be no political cronyism was given by the Chief Secretary, who said that the City would not put up with any political appointments. The City would make its displeasure known, and the Chancellor would not dare to install political allies or stooges. That argument was deconstructed convincingly and elegantly by my hon. Friend the Member for Grantham and Stamford (Mr. Davies), who made the entirely valid point that a premium would attach. Investors and traders outside this country, and even in the City, would say, "This is a dodgy committee. We are worried about what the macro-economic management of this currency and this country is all about." There would be a premium when it came to buying and selling. The Chief Secretary did not address that point in Committee, and I think that he should do so. It is not enough to say that the committee will be self-regulating.
A huge power is being transferred to an unelected quango that is like no other quango. In Standing Committee, Labour Members wanted to know the difference between the new statutory body created by the Bill and the Prison Service agency or the Passport Agency. Labour Members must be living on a different planet if they do not understand the difference, which is clear, between those bodies and the one created by the Bill. The difference is that interest rate policy touches the lives and interests of so many people. It affects mortgage holders; it affects the levels at which exporters trade their products; and—because monetary policy affects inflation—it affects everyone's cost of living. Those are huge political issues that concern people's daily lives.
It is nothing short of disgraceful for Ministers, with virtually no consultation, to introduce this Bill and to propose a statutory body comprising unelected placemen and appointees. We should carefully examine new clause 1, and assert the fact that Parliament must be able to hold the Executive to account on big political decisions, such as setting interest rate policy. That must be right.
Opposition Members want to halt the dangerous trend of downgrading the importance of the House that the Government have set in train—by leaking stories to newspapers, by the manner in which they set policy on economic and monetary union, by their errant disregard for the House's practices and by not consulting the House, as they should, in determining their conduct as a responsible Executive. In that spirit, I support new clause 1.

Mr. Michael Fallon: I should like to speak briefly to the final four amendments in the group. Before I do so, however, it is my very pleasant duty to congratulate the hon. Member for Newark (Mrs. Jones) on her maiden speech. As the successor to both Richard Alexander and William Gladstone, she has her work cut out. If she emulates the popularity of the former and longevity of the latter, she will be doing very well indeed. It was an extremely fluent speech. I have no idea why she chose to wait before delivering it, but we shall certainly be disappointed if it is as long again before we hear her next speech. The Opposition congratulate her on it.

Mr. Ruffley: In my speech, I was negligent in not congratulating the hon. Member for Newark (Mrs. Jones) on her speech; I wish to do so fulsomely. It was an elegant, beautifully crafted and wonderfully delivered speech, and I should like to congratulate her. I apologise for not doing so earlier.

Mr. Fallon: Before advising the Opposition on the course of action that we should take on new clauses 1 and 3, I should like to speak briefly to the final four amendments in the group: amendment Nos. 3, 18, 20 and 19.
The object of amendment No. 3 is to ensure that the outside appointments to the Monetary Policy Committee really are outside appointments. Currently, five members of the Monetary Policy Committee are Bank of England employees. It should therefore be self-evident that the other four—the so-called external appointees—should not be Bank of England employees. That is certainly the understanding that the Select Committee expresses in its report, which—at paragraph 46, and again at paragraph 50—refers to those members being external.
The Chancellor of the Exchequer, in his statement in May—which is helpfully included as appendix 1 in the Select Committee's report—makes it clear, at paragraph 20, that
the Government will also appoint four members of the Monetary Policy Committee from outside the Bank of England.
However, it is not clear in the Bill whether that will happen.
The purpose of amendment No. 3 is to make it very clear that those four external appointments must be external, and that they cannot have been employed recently by the Bank. The amendment seems to be so self-evidently useful that I look forward to the Chief Secretary accepting it.
5.45 pm
Amendment Nos. 18, 19 and 20 deal with the length of appointment of Monetary Policy Committee members. Some hon. Members who have spoken in this debate discussed the nature and length of the appointments, and the House should be a little clearer about them. In Standing Committee, it was fairly obvious that the Government have themselves not decided on them.
I am sorry not to see the Paymaster General—who dealt with the Bill in Standing Committee—in the Chamber for this debate. Perhaps he has been—I must not say detained—occupied elsewhere. In Standing Committee, he said:
This is not an exact science".
He even invited the Standing Committee members
to wait for us to introduce proposals."—[Official Report, Standing Committee D, 27 November 1997; c. 175.]
The Bill is now in the later stages of its passage through the House, and I should have hoped that by now we had had more proposals from the Government on how the appointments will be made, how they will be phased and staggered, and whether Ministers really do think that three years is the right length for membership of the Monetary Policy Committee.
It is precisely because the Government have not yet proposed firm ideas that the Opposition have. Amendment Nos. 18 and 19 distinguish between Monetary Policy Committee internal and external members. In the same sitting of the Standing Committee, the Paymaster General drew that distinction—which I think is important—between internal and external members. We would therefore allow the three-year period to apply to internal members, but suggest the longer period of four years for external members.
I must confess that amendment No. 20 is very much a fall-back amendment. If the Chief Secretary is not prepared to accept our suggestion of differing lengths of appointment for different Monetary Policy Committee members, we still think that there is a case for a term longer than three years—which has been accepted by hon. Members on both sides of the House. The advantage of four years over three years is that such a length is more likely to allow some membership crossover between general elections—which is an important point to which I look forward to hearing the Chief Secretary's reply.
I return to new clauses 1 and 3. This has been a very good debate, and a very House of Commons debate—because, ultimately, we are dealing with a House of Commons matter. In Committee, the Chief Secretary himself said:
the House should consider the merits of such hearings and decide".—[Official Report, Standing Committee D, 18 November 1997; c. 28.]
That is exactly what has happened. The Treasury Select Committee has gone off and considered the merits of the hearings, and, in a very persuasive and well-argued report, it has produced its conclusions. Today, the House has debated those conclusions.
Strong support has been shown on both sides of the House, and certainly among Conservative Members, for the principle that lies behind both the new clauses. The principle may be simply stated: to make the Bank—that quango bank—more accountable. If it is right for the Chancellor to delegate his responsibility for monetary policy to the Bank of England, it must be equally right for the House to ensure that its accountability is similarly transferred, and that the House continues to play a role by confirming some or all of the appointments to the Monetary Policy Committee.
I do not think—I sense that it is also the House's view—that there is any reason to delay further a decision on the matter. Nor is there any case for simply relying on further warm words from the Chief Secretary. As its Chairman has told us, the Treasury Select Committee is now likely to proceed on that basis even informally, and that reinforces the case for putting those arrangements into statute.
The only remaining question is which new clause we should put into the Bill, our new clause 1 or the Committee's new clause 3. They are slightly different. The Committee's new clause does not allow for open competition for the appointments, but it is a fuller new clause, and perhaps even better drafted than ours on the key principle.
Most important of all is the principle that as this is a matter for the House, we should perhaps be guided as a House by the advice of our principal Committee in making our decision. Depending on what the Chief Secretary says in his reply, I shall therefore probably suggest to my right hon. and hon. Friends that we withdraw new clause 1, and invite them to support new clause 3.
We have listened to what the House has said. Now we hope that Ministers will have listened, too.

The Chief Secretary to the Treasury (Mr. Alistair Darling): I begin by welcoming my hon. Friend the Member for Newark (Mrs. Jones) and congratulating her on her maiden speech. I understand that she was a journalist before entering the House. She is now a journalist turned politician, so she will know what it is like to be a shark that discovers it has cut itself, and finds itself at the centre of a feeding frenzy, the victim of its former friends.
My hon. Friend made a thoughtful speech and paid a handsome tribute to Richard Alexander who, as many of us remember, took an independent line when he felt that

his constituents' interests were at risk. She also spoke in support of the Government's economic policy and of many of the measures in the Bill, which are central to achieving the objective to which she referred, economic stability.
My hon. Friend need have no fear; I am sure that she will have many useful contributions to make in debates both on the Floor of the House and in Committee, and she deserves to be congratulated.
Before I deal with the main debate, which is essentially about confirmation hearings, I shall speak briefly about what was said by the junior shadow Treasury spokesman, the hon. Member for Sevenoaks (Mr. Fallon). I suppose that I must congratulate him on his transfer from the shadow Department of Trade and Industry team, although perhaps the circumstances were not as he might have wished.
The term of office of members of the Monetary Policy Committee was debated at some length in the Standing Committee. We believe that three years is the appropriate time, and it is entirely in line with the interim report of the Hempel committee, which says that three years is a reasonable time. There is an expectation that members will be reappointed from time to time, and we believe that three years is the right period.

Mr. Andrew Tyrie: If the Chief Secretary is so sure that three years is the right time, will he explain why he feels that the United Kingdom should be out of step with the Bank of France, which has terms of six and nine years, with the Federal Reserve, which has terms of up to 14 years, and with the Bundesbank, which has terms of eight years?

Mr. Darling: Simply because we are dealing with the Bank of England, not the Bank of France or of anywhere else.

Mr. Tyrie: Answer the question.

Mr. Darling: I happen to think that a term of office of 13 or 14 years is too long. It is for the United States to decide what is appropriate for its country, but I think that that is too long. There is an expectation that the Government will reappoint members from time to time, so three years can become six years or even nine years. Three years is therefore an appropriate period, and I am not inclined to accept the Opposition's advice on that point.
Equally, although I understand what the Opposition say about former employees of the Bank, I am not sure that I would want to take such a hard and fast line and say that somebody could not be appointed, just because he or she had worked for the Bank in the past five years. That may be something which the Chancellor the Exchequer would want to consider in deciding whether an individual was an appropriate person, but there still may be circumstances in which a former Governor or Deputy Governor would be an appropriate person. I do not know; we shall have to see, but I am not inclined to accept the Opposition's suggestion.
I shall now talk about new clauses 1 and 3, although new clause 1 is no longer with us because the Opposition, who presumably did not think that it would command a majority in the House, have withdrawn it. That new clause


raised two matters that the Treasury Select Committee new clause—if I may refer to new clause 3 in that way—does not raise. It required the Chancellor to consult the Treasury Select Committee on a procedure for a competition in relation to appointments to the Monetary Policy Committee—

Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I must tell the Chief Secretary that no new clause has yet been withdrawn, because the House has not been asked to approve a withdrawal.

Mr. Darling: I apologise, Mr. Deputy Speaker. I was anticipating what would happen if the shadow Treasury spokesman stuck to what he said and withdrew new clause 1. In case he does not, I shall continue to deal with what he said about it.

Mr. Barry Sheerman: Can we get the record straight? I understand that the reason why the new clause may be withdrawn is that the Opposition cannot guarantee that even their own Members will support it.

Mr. Darling: My hon. Friend may be right, but, in the spirit of what has been quite a useful debate, and one remarkably, although not entirely, unpartisan, I shall address the merits of the points raised. Many hon. Members have thought a great deal about the procedures, and I should like to give the Government's response.
None the less, I shall start by making a slightly partisan point, in the light of what the shadow Chief Secretary said. I welcome the Opposition's conversion to open government. However, I am bound to say that in the 10 years that I spent on the Opposition Benches, I do not remember even one occasion when the Conservative Government ever offered to consult anyone about open procedures for appointing any person to any quango or body for which they had responsibility.
I know that the Tories are changing, and that last September at their conference they said they were terribly sorry and wanted to be a softer and caring party—and now they even want open government. Clearly they are touching and feeling their way to a new Conservatism, and it is all most welcome.

Sir Michael Spicer: Will the Minister give way?

Mr. Darling: No, not at the moment, although I shall certainly give way later to the hon. Gentleman, who may not be fully at ease with that change of mood in the Conservative party. First, I should like to make some progress.
My hon. Friend the Member for Great Grimsby (Mr. Mitchell) raised several points about the new clauses, one of which was about the balance of the court. I do not want to accept his amendment, because appointments to the court are Crown appointments, but I agree with everything that he said about the need to have a balance on the court, from the regions, from finance and from business, so that there is a broad representation.
My hon. Friend will understand that I cannot say anything further tonight, other than that I hope that when he sees the appointments that will shortly be made to the court, he will not be disappointed. The Chancellor has

made it abundantly clear that he intends to ensure that the restructured court has a far broader base than it has ever had in the past, and, as my hon. Friend will see, we shall make the first moves in that direction in the not too distant future.
Let me set out the Government's approach in general, and then turn to the proposals by the Select Committee in particular. But first I shall make one important preliminary point that should not be overlooked. Tonight's debate has essentially been not about the principle or the constitution of the Monetary Policy Committee, but about whether there should be confirmatory hearings, which are ancillary to those—designed, as my hon. Friend the Member for Norwich, South (Mr. Clarke) said, to enhance the procedures.
We should not lose sight of the fact that the test of the Monetary Policy Committee will be whether it achieves the Government's inflation target of 2½ per cent. That will be the test in which most people will be interested.
I set out the Government's view when I appeared before the Treasury Select Committee last November. I repeat that the Government continue to have an open mind on whether the House should move towards instituting confirmatory hearings, but that we see some practical difficulties that need to be given much thought.
Of course, it is necessary to approach the proposition from the point of view not only of making appointments to the Monetary Policy Committee but of making a whole range of important public appointments.
I accept that the Monetary Policy Committee is clearly of great importance. Its job is to deliver the inflation target, so the calibre and quality of its members clearly matter. Indeed, clause 13(4) acknowledges that, because it provides that the Chancellor is bound to appoint only those people who have sufficient expertise and knowledge to discharge that duty.
I must start with an important matter of principle, a House of Commons matter about which each and every one of us ought to be concerned. At the moment, the constitutional position is that Ministers are responsible to the House for what they do. The Chancellor is accountable for his conduct of the economy and for appointing members to the MPC. If Select Committees are to be given the power of confirmatory hearings and, almost by definition, to choose who might be on the MPC—a number of hon. Members have made it abundantly clear that they would want to exercise some degree of choice, depending on their views on Europe, monetarism or whatever—the MPC appointed might be the appointee not of the Chancellor but of the Select Committee or, perhaps, the House. That is not merely a nice debating point, as an issue of principle is involved.

6 pm

Mr. Charles Clarke: Does my right hon. Friend accept that some members of the Select Committee did not want to influence the appointment or the ideological position—pro or anti-European, anti-monetarist or whatever—but were concerned purely about professional competence and personal independence? Although there may be hon. Members, as he says, who think that the Treasury Select Committee should directly influence the appointments, that is not the view that informed new clause 3.

Mr. Darling: I entirely accept what my hon. Friend says—that those members of the Select Committee who


support the proposition want to confine their attentions to a very narrow range. However, it has been made abundantly clear in the debate and, bearing in mind the differing views and nature of the 650 Members of the House it is entirely possible—we have heard it tonight—that many hon. Members might want to go well beyond those two narrow steps and to look further.

Mr. Gibb: rose—

Mr. Darling: I should like to make some progress; then I will give way.
I was pointing out that we might have a situation in which an appointee to the MPC or, for example, the Director General of the Prison Service, was not the appointment of the Minister, who might say, "That's not my appointment. I'm not willing to take responsibility for what the appointee or the body does."

Mr. Fallon: We cannot let the Chief Secretary get away with that. No one is suggesting that the Select Committee would choose who was to be appointed under the statute. Indeed, no one is proposing an amendment to that effect. Both new clauses simply deal with confirmation of appointments made by the Chancellor.

Mr. Darling: The hon. Gentleman is right as far as new clause 3 is concerned. It makes it clear that, at the end of the day, the Chancellor can have his way.

Mr. Fallon: He does so at the beginning of the day.

Mr. Darling: The appointments would be subject to confirmatory hearing and, were the Select Committee to say that the person was not suitable, the new clause is phrased to allow the Chancellor to write explaining his reasons and go ahead with the appointment. The new clause would avoid the precise problems to which I referred, although it would still be the case that the individual might have been so crippled in the process of confirmation that he or she would be put in a difficult position. Were the House to decide to have confirmatory hearings in total—that is to decide that the relevant Select Committee could decide whether someone was to be confirmed—the appointee could become that of the House and not of the Minister.
I raise that matter because we must consider the issues of principle raised by the new clause. That is why the Government's position is that it is a matter that the House as a whole must consider across the board, not simply as an amendment to the Bill.

Sir Michael Spicer: The right hon. Gentleman bases his case, as I understand it, on the fact that the House is making excessive demands of the Government in this matter. The whole issue must be seen, must it not, in the context of the fact that the Government have stripped away the House's ability to render the Government accountable on the Floor of the House on monetary policy as a whole.

Mr. Darling: As I said, the Chancellor of the Exchequer can be held to account by the House at any

time for the conduct of the Government's economic policy. The Government have given the Monetary Policy Committee operational responsibility for fixing interest rates in such a way as to achieve the Government's inflation target.

Mr. Quentin Davies: It is fatuous to raise as an objection to a new clause a danger that is explicitly excluded by the wording of that new clause. That is the position here, as the right hon. Gentleman has just acknowledged. Does he not realise that if he pursues an argument on that basis, he is sending the House a clear message that he does not have a case against the new clause at all?

Mr. Darling: I shall develop that argument further. I repeat that there is an issue of principle as regards ministerial accountability—an issue about which hon. Members need to think long and hard.

Mr. Gibb: Given that the Treasury Select Committee stated that it will go ahead with the confirmatory hearings regardless of whether the amendment is passed and given the Chief Secretary's firm opposition to those hearings, how will the Government cope if the Select Committee refuses to confirm one of the appointments?

Mr. Darling: We are debating whether we should incorporate the new clause into the Bank of England Bill. That is an entirely different proposition from that advanced by the Treasury Select Committee, to which I shall return shortly.
To conclude my initial point, ministerial accountability and who is responsible for what are matters about which the House needs to think. The whole question of ministerial accountability has fallen into disrepute in the past few years. If we are to reconsider that area, we must consider the implications long and hard. Neither that argument nor the other arguments that I will advance are fatal to the proposition of confirmatory hearings, but we do not believe that such a measure should simply be bolted on to the Bill; it is something that the House should consider.
I shall deal with the other arguments. My hon. Friend the Member for Norwich, South helpfully set out some of the arguments that I put before the Treasury Select Committee, which I shall deal with briefly. First, I observed that there was a risk that the appointments process would be not about the merits of a particular candidate, but a way of getting at the Government of the day. I accept that no member of the present Treasury Select Committee would dream of doing such a thing, but it must be within our contemplation that a future Select Committee or other Select Committees might decide, depending on the composition of the House—within recent memory a Government did not have a majority—the Opposition, dissident members of the governing party or cross-party, to have a go at the Government by trying to get at an individual. It is not fatal, but it is something which we must consider. If that happened, it would bring the whole system into disrepute.
I also said that I thought that confirmatory hearings of that type might discourage candidates from coming forward. I mentioned John Maynard Keynes, who has been referred to on many occasions. I have been in the


House for only 10 years and my hon. Friend the Member for Norwich, South has been here for only nine months, but I am sure that he will have observed from time to time a tendency for hon. Members to use their privilege as Members to say things that they would never get away with outside the House. For whatever reason, they might decide to have a go at someone appearing before them.
I mentioned Keynes because his economic credentials would have been without doubt. However, were he to appear before the Treasury Select Committee today, although the Gallery would be packed, while many of the journalists and others would be there to hear his General Theory, a number would be there in the hope that he would be asked about his private life, which, even by today's standards, might be thought by some to be rather unorthodox.
Again, I am confident that in the majority of cases that sort of thing would not happen, but it must be within the contemplation of the House that, on occasion, the Opposition or others might have a go at the Government by trying to find out something about an individual appointee that would make it difficult for the Government.

Mr. Radice: The fact is that we have had formal soundings with the members of the Monetary Policy Committee, and all of them have approved of the idea. I accept the dangers to which my right hon. Friend refers, and we must guard against them, but the members of the MPC believe that confirmatory hearings would enhance their position rather than weaken it.

Mr. Darling: I agree. I have spoken to members of the Monetary Policy Committee in anticipation of a visit to the MPC, to which I certainly look forward. As part of the open process that the Government have instituted, the chance for members to advance their theories and approach on inflation would add to transparency. I have not the slightest doubt that my hon. Friend will ensure, when the Select Committee sets up the procedures, that they are fair and that the individuals have a chance to state their case and will be questioned only on matters that are germane to their appointment.
We are discussing specific new clauses, but we are dealing with a general principle. I undertook to set out the Government's position, which is that the idea is worthy of consideration, but that we have a duty to consider not only the advantages but the downside. None of the matters that I have mentioned is fatal to the proposal, but it would be wrong to apply confirmatory hearings to these appointments and not to others that are equally important. Examples could include the utility regulators, the Governor of the Bank of England and his deputies—those are fairly important appointments, after all—and members of the Financial Services Authority. That is why we are not inclined to accept either of the new clauses.
One important point concerning new clause 1 that has not been discussed to any great extent today is the need to ensure that the individuals maintain the high standards of public life that we would all expect.
I remind the House that the Government made proposals last November that would mean adopting a code of practice involving various procedures designed to make the appointments process more open and auditable, because the job and the desired qualifications of the appointee would have to be publicly specified: candidates

would have to be identified through advertising or appropriate consultation, and the sifting or selection of candidates would have to be undertaken and overseen by a panel with at least one independent member. If the proposals are acceptable, we will act right across the board to implement them.
We must consider what the Treasury Select Committee would decide on. We have already had some discussion about that. Would the Select Committee discuss candidates' views or the number of papers that they had presented to the academic community, for example? We all know that economists cannot agree, and I doubt whether the Select Committee would always agree about who is best. The choice is bound to be subjective. We should not lose sight of the fact that the key test is whether the Monetary Policy Committee delivers the Government's objective of low inflation.
The Treasury Select Committee has said that it wants to call members of the MPC before it, and I welcome that. The whole House has an opportunity to watch how the procedures develop and work in practice. It could be that many of my fears come to nothing, but they should not be ignored, because we must always guard against dangers. I hope that the Select Committee will bear it in mind that the whole House will be watching to see whether the confirmatory hearings are successful and whether, indeed, they add to the general openness and transparency that the Government want.
The matters dealt with in the new clauses deserve further consideration. We are keeping the proposal under review, but we do not believe that it would be right to institute confirmatory hearings for one set of appointments in this Bill alone. It is the Monetary Policy Committee's job to achieve the Government's inflation target. That is where the main interest lies. The Chancellor remains accountable to the House for the conduct of economic policy.
For those reasons, I urge the House to reject the new clauses. We will keep the matter under review, and perhaps at some stage the House can have a substantive debate on the merits of having confirmatory hearings right across the board.

Mr. Heathcoat-Amory: We listened carefully to the Chief Secretary. He was highly sympathetic to the concept of confirmatory hearings—but not now, and not for this Bill. His reasons disintegrated before the House. He was afraid that the candidates would be questioned about their private life, and that people could be deterred from standing by the thought that they would be cross-examined by the nasty Treasury Select Committee.
As the Chairman of the Select Committee, the hon. Member for North Durham (Mr. Radice), said in his excellent contribution, the questioning would centre only on the competence and independence of the candidates; that is written into new clause 3, so there is no danger, either in intention or in law, that the questioning could go as wide as the Chief Secretary fears. He gave no reasons why we should not accept the excellent all-party report. We will urge the House to vote for new clause 3.
The Chief Secretary said that the proposal would open up a Pandora's box, and that not only Monetary Policy Committee members but even the Governor of the Bank of England might be subjected to such hearings. That is


indeed the case. A glance at new clause 3 shows that it applies to the Governor himself. The right hon. Gentleman did not even read it before inviting the House to reject it.
New clause 3, tabled by the hon. Member for North Durham and others, is well drafted, and we intend to support that, rather than new clause 1. I therefore beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New clause 3

CONFIRMATION HEARINGS FOR BANK APPOINTMENTS

'— The Treasury Committee of the House of Commons may, within thirty calendar days of a nomination being made in relation to an appointment under sections 1(2) or 13 of this Act, make a report to the House of Commons—

stating its conclusion that a nominee for the post of Governor or Deputy Governor meets the criteria of competence and personal independence or that a nominee for membership of the Monetary Policy Committee meets the criteria specified in section 13(4), or
giving its reasons for considering that a nominee for the post of Governor or Deputy Governor does not meet the criteria of competence and personal independence or that a nominee for membership of the Monetary Policy Committee does not meet the criteria specified in section 13(4), and inviting the Chancellor of the Exchequer to reconsider the nomination.

(2) A nomination of which the Committee signifies its approval or on which it decides not to make a report to the House of Commons shall be confirmed by the Chancellor of the Exchequer on receipt of the Committee's report or after thirty days, whichever is the sooner.
(3) A nomination which the Committee invites the Chancellor to reconsider shall not be confirmed until seven days after the Chancellor has written to the Treasury Committee giving his reasons for continuing with the nomination.
(4) The provisions of subsections (1) (2) and (3) above shall apply only when the Treasury Committee has been formally constituted.
If at any time after the passing of this Act—

(a) the name of the Treasury Committee is changed; or
(b) the functions discharged by that Committee at the passing of this Act, or functions substantially corresponding thereto, are discharged by a different Committee,

the reference to the Treasury Committee shall be construed as a reference to that Committee by its new name or to the Committee then discharging those functions.
(6) Any question arising under subsections (4) and (5) shall be determined by the Speaker of the House of Commons.'.—[Mr. Quentin Davies.]

Brought up, and read the First time.

Motion made, and Question put, That the clause be read a Second time:—

The House divided: Ayes 143, Noes 252.

Division No. 138]
[6.17 pm


AYES


Ainsworth, Peter (E Surrey)
Beresford, Sir Paul


Arbuthnot, James
Body, Sir Richard


Atkinson, David (Bour'mth E)
Boswell, Tim



Bottomley, Peter (Worthing W)


Atkinson, Peter (Hexham)
Bottomley, Rt Hon Mrs Virginia


Bell, Martin (Tatton)
Brady, Graham


Bercow, John
Brake, Tom





Brazier, Julian
MacGregor, Rt Hon John


Breed, Colin
McIntosh, Miss Anne


Brooke, Rt Hon Peter
Maclean, Rt Hon David


Browning, Mrs Angela
McLoughlin, Patrick


Bruce, Ian (S Dorset)
Madel, Sir David


Bruce, Malcolm (Gordon)
Major, Rt Hon John


Burnett, John
Malins, Humfrey


Burns, Simon
Maples, John


Butterfill, John
Mates, Michael


Cable, Dr Vincent
Maude, Rt Hon Francis


Chapman, Sir Sydney (Chipping Barnet)
Mawhinney, Rt Hon Sir Brian



May, Mrs Theresa


Clappison, James
Moore, Michael


Clark, Rt Hon Alan (Kensington)
Moss, Malcolm


Clark, Dr Michael (Rayleigh)
Nicholls, Patrick


Collins, Tim
Norman, Archie


Colvin, Michael
Oaten, Mark


Cotter, Brian
Ottaway, Richard


Cran, James
Page, Richard


Davey, Edward (Kingston)
Paice, James


Davies, Quentin (Grantham)
Paterson, Owen


Davis, Rt Hon David (Haltemprice)
Prior, David


Duncan Smith, Iain
Randall, John


Emery, Rt Hon Sir Peter
Rendel, David


Evans, Nigel
Robathan, Andrew


Faber, David
Robertson, Laurence (Tewk'b'ry)


Fallon, Michael
Roe, Mrs Marion (Broxbourne)


Flight, Howard
Ross, William (E Lond'y)


Forth, Rt Hon Eric
Rowe, Andrew (Faversham)


Fowler, Rt Hon Sir Norman
Ruffley, David


Fraser, Christopher
Russell, Bob (Colchester)


Gale, Roger
St Aubyn, Nick


Gibb, Nick
Sanders, Adrian


Gill, Christopher
Shephard, Rt Hon Mrs Gillian


Gillan, Mrs Cheryl
Simpson, Keith (Mid-Norfolk)


Goodlad, Rt Hon Sir Alastair
Soames, Nicholas


Gorman, Mrs Teresa
Spelman, Mrs Caroline


Gorrie, Donald
Spicer, Sir Michael


Green, Damian
Spring, Richard


Greenway, John
Stanley, Rt Hon Sir John


Hamilton, Rt Hon Sir Archie
Steen, Anthony


Hammond, Philip
Stunell, Andrew


Harvey, Nick
Swayne, Desmond


Hawkins, Nick
Syms, Robert


Hayes, John
Tapsell, Sir Peter


Heald, Oliver
Taylor, Ian (Esher & Walton)


Heath, David (Somerton & Frome)
Taylor, John M (Solihull)


Heathcoat-Amory, Rt Hon David
Taylor, Sir Teddy


Horam, John
Thompson, William


Howard, Rt Hon Michael
Townend, John


Howarth, Gerald (Aldershot)
Trend, Michael


Hunter, Andrew
Tyrie, Andrew


Jack, Rt Hon Michael
Wallace, James


Jackson, Robert (Wantage)
Walter, Robert


Jenkin, Bernard
Wardle, Charles


Johnson Smith, Rt Hon Sir Geoffrey
Whittingdale, John



Wilkinson, John


Key, Robert
Willetts, David


Kirkbride, Miss Julie
Willis, Phil


Laing, Mrs Eleanor
Wilshire, David


Lait, Mrs Jacqui
Winterton, Mrs Ann (Congleton)


Lansley, Andrew
Winterton, Nicholas (Macclesfield)


Leigh, Edward
Woodward, Shaun


Letwin, Oliver
Young, Rt Hon Sir George


Lewis, Dr Julian (New Forest E)



Lilley, Rt Hon Peter
Tellers for the Ayes:


Loughton, Tim
Mr. Nigel Waterson and


Luff, Peter
Mr. Stephen Day.




NOES


Abbott, Ms Diane
Ashton, Joe


Ainger, Nick
Atherton, Ms Candy


Ainsworth, Robert (Cov'try NE)
Atkins, Charlotte


Alexander, Douglas
Barnes, Harry


Anderson, Donald (Swansea E)
Barron, Kevin


Anderson, Janet (Rossendale)
Bayley, Hugh






Beard, Nigel
Godman, Norman A


Beckett, Rt Hon Mrs Margaret
Godsiff, Roger


Begg, Miss Anne
Golding, Mrs Llin


Bennett, Andrew F
Grant, Bernie


Benton, Joe
Griffiths, Win (Bridgend)


Bermingham, Gerald
Grocott, Bruce


Berry, Roger
Hain, Peter


Best, Harold
Hall, Mike (Weaver Vale)


Betts, Clive
Hall, Patrick (Bedford)


Blears, Ms Hazel
Hamilton, Fabian (Leeds NE)


Blizzard, Bob
Hanson, David


Boateng, Paul
Heal, Mrs Sylvia


Borrow, David
Henderson, Ivan (Harwich)


Brown, Rt Hon Nick (Newcastle E)
Heppell, John


Browne, Desmond
Hesford, Stephen


Buck, Ms Karen
Hewitt, Ms Patricia


Burden, Richard
Hill, Keith


Butler, Mrs Christine
Hinchliffe, David


Byers, Stephen
Hodge, Ms Margaret


Campbell, Alan (Tynemouth)
Hoey, Kate


Campbell, Mrs Anne (C'bridge)
Home Robertson, John


Campbell, Ronnie (Blyth V)
Hope, Phil


Caplin, Ivor
Hopkins, Kelvin


Casale, Roger
Howarth, Alan (Newport E)


Caton, Martin
Hughes, Ms Beverley (Stretford)


Chapman, Ben (Wirral S)
Hughes, Kevin (Doncaster N)


Chaytor, David
Humble, Mrs Joan


Chisholm, Malcolm
Hurst, Alan


Clapham, Michael
Hutton, John


Clark, Rt Hon Dr David (S Shields)
Iddon, Dr Brian


Clarke, Tony (Northampton S)
Ingram, Adam


Clwyd, Ann
Jackson, Ms Glenda (Hampstead)


Coaker, Vernon
Jackson, Helen (Hillsborough)


Coleman, Iain
Jamieson, David


Cooper, Yvette
Jenkins, Brian


Corbett, Robin
Johnson, Alan (Hull W & Hessle)


Corston, Ms Jean
Johnson, Miss Melanie (Welwyn Hatfield)


Cousins, Jim



Cox, Tom
Jones, Barry (Alyn & Deeside)


Cranston, Ross
Jones, Mrs Fiona (Newark)


Crausby, David
Jones, Ms Jenny (Wolverh'ton SW)


Cunningham, Rt Hon Dr John (Copeland)




Jones, Jon Owen (Cardiff C)


Dalyell, Tam
Jones, Dr Lynne (Selly Oak)


Darling, Rt Hon Alistair
Jones, Martyn (Clwyd S)


Davey, Valerie (Bristol W)
Keeble, Ms Sally


Davis, Terry (B'ham Hodge H)
Keen, Alan (Feltham & Heston)


Dean, Mrs Janet
Keen, Ann (Brentford & Isleworth)


Denham, John
Kelly, Ms Ruth


Dismore, Andrew
Kemp, Fraser


Dobbin, Jim
Kennedy, Jane (Wavertree)


Doran, Frank
Khabra, Piara S


Dowd, Jim
Kidney, David


Drew, David
King, Andy (Rugby & Kenilworth)


Eagle, Angela (Wallasey)
King, Ms Oona (Bethnal Green)


Eagle, Maria (L'pool Garston)
Kumar, Dr Ashok


Edwards, Huw
Ladyman, Dr Stephen


Efford, Clive
Laxton, Bob


Ellman, Mrs Louise
Lepper, David


Fatchett, Derek
Leslie, Christopher


Field, Rt Hon Frank
Levitt, Tom


Fitzpatrick, Jim
Lewis, Ivan (Bury S)


Fitzsimons, Lorna
Liddell, Mrs Helen


Flint, Caroline
Linton, Martin


Follett, Barbara
Livingstone, Ken


Foster, Rt Hon Derek
Lock, David


Foster, Michael Jabez (Hastings)
McAvoy, Thomas


Foster, Michael J (Worcester)
McCafferty, Ms Chris


Gapes, Mike
McCartney, Ian (Makerfield)


Gardiner, Barry
McDonagh, Siobhain


George, Bruce (Walsall S)
Macdonald, Calum


Gerrard, Neil
McDonnell, John


Gibson, Dr Ian
McFall, John





McGrady, Eddie
Sheerman, Barry


McGuire, Mrs Anne
Sheldon, Rt Hon Robert


McIsaac, Shona
Skinner, Dennis


Mackinlay, Andrew
Smith, Rt Hon Andrew (Oxford E)


McNulty, Tony
Smith, Angela (Basildon)


MacShane, Denis
Smith, Miss Geraldine (Morecambe & Lunesdale)


Mactaggart, Fiona



McWalter, Tony
Smith, John (Glamorgan)


Mallaber, Judy
Soley, Clive


Marshall, Jim (Leicester S)
Southworth, Ms Helen


Meale, Alan
Spellar, John


Michie, Bill (Shef'ld Heeley)
Squire, Ms Rachel


Milburn, Alan
Starkey, Dr Phyllis


Miller, Andrew
Stewart, David (Inverness E)


Mitchell, Austin
Stewart, Ian (Eccles)


Moffatt, Laura
Stinchcombe, Paul


Moran, Ms Margaret
Stoate, Dr Howard


Morgan, Ms Julie (Cardiff N)
Straw, Rt Hon Jack


Morgan, Rhodri (Cardiff W)
Stuart, Ms Gisela


Morley, Elliot
Taylor, Rt Hon Mrs Ann (Dewsbury)


Morris, Ms Estelle (B'ham Yardley)



Morris, Rt Hon John (Aberavon)
Taylor, David (NW Leics)


Mudie, George
Temple-Morris, Peter


Mullin, Chris
Thomas, Gareth (Clwyd W)


Naysmith, Dr Doug
Timms, Stephen


O'Brien, Mike (N Warks)
Tipping, Paddy


Olner, Bill
Todd, Mark


Pearson, Ian
Touhig, Don


Pendry, Tom
Turner, Dennis (Wolverh'ton SE)


Perham, Ms Linda
Turner, Dr Desmond (Kemptown)


Pickthall, Colin
Turner, Dr George (NW Norfolk)


Pike, Peter L
Vaz, Keith


Plaskitt, James
Vis, Dr Rudi


Pollard, Kerry
Walley, Ms Joan


Pond, Chris
Ward, Ms Claire


Pound, Stephen
White, Brian


Powell, Sir Raymond
Wicks, Malcolm


Prentice, Ms Bridget (Lewisham E)
Williams, Rt Hon Alan (Swansea W)


Prentice, Gordon (Pendle)



Primarolo, Dawn
Williams, Alan W (E Carmarthen)


Prosser, Gwyn
Winterton, Ms Rosie (Doncaster C)


Purchase, Ken
Wise, Audrey


Quin, Ms Joyce
Wood, Mike


Rammell, Bill
Woolas, Phil


Reed, Andrew (Loughborough)
Worthington, Tony


Robinson, Geoffrey (Cov'try NW)
Wright, Anthony D (Gt Yarmouth)


Rooker, Jeff
Wright, Dr Tony (Cannock)


Salter, Martin
Wyatt, Derek


Savidge, Malcolm



Sawford, Phil
Tellers for the Noes:


Sedgemore, Brian
Mr. Graham Allen and


Shaw, Jonathan
Mr. Greg Pope.

Question accordingly negatived.

Mr. Heathcoat-Amory: On a point of order, Mr. Deputy Speaker. We have just had a Division on a new clause tabled by the Chairman of the Treasury Select Committee, a Labour Member, and signed by two of his hon. Friends. They spoke in favour of the new clause, but when it came to a Division, they failed to support it. Is that in order or is it an abuse of the procedures of the House to table an amendment, speak in its favour and fail to support it in a Division, presumably because one has been improperly leaned on by the Whips?

Mr. Deputy Speaker: From experience, I suspect that this is not the first occasion on which that has happened. Hon. Members are responsible for their own actions. It is not a matter for the Chair.

Clause 3

FUNCTIONS TO BE CARRIED OUT BY NON-EXECUTIVE MEMBERS

Mr. Darling: I beg to move amendment No. 41, in page 2, line 23, at end insert—
'(2A) At a meeting of the sub-committee the quorum shall be 7.'

Mr. Deputy Speaker: With this, it will be convenient to discuss the following amendments: Government amendment No. 42.
No. 14, in page 2, leave out lines 26 and 27.

Mr. Darling: I said during the debates in Standing Committee on clause 3 that I accepted that the clause was deficient to the extent that it did not contain any specific standing orders. Amendment No. 41 will give the sub-committee a quorum of seven. Amendment No. 42 adapts the existing standing orders for the court.
With amendment No. 41 is grouped amendment No. 14, which was tabled by the Opposition. Its effect would be to remove the power of the sub-committee to delegate its functions to two or more of its members. I believe that that power is important simply because its makes for good management.
Anyone who has ever sat on any committee or has had anything to do with running a business will know that it is common for a board or committee to delegate its functions to perhaps two or three individuals, for them to report back to the parent committee or board, and for the board or committee to make a final decision. Even if the sub-committee delegates responsibility for certain functions to a sub-committee of two or more, it as a whole has statutory and collective responsibility for the duties set out in the Bill.
The Opposition amendment would simply hamper the smooth operation of the sub-committee. Therefore, I urge the House to accept the two Government amendments and to reject the Opposition amendment.

Mr. Fallon: It is in the nature of the grouping of the amendments that the Chief Secretary finds himself replying to an amendment that I have not yet explained, and trying to assume the arguments behind it. Be that as it may, let us begin with Government amendments Nos. 41 and 42.
I hope that the House will not be deceived by the graceful note with which the Chief Secretary moved the amendments. That was not the tone that he adopted in Committee. [HON. MEMBERS: "You were not there."' I have read the proceedings of the Committee, and I am about to quote from them. When the matter was raised in Committee by my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley), the Chief Secretary said of my hon. Friend:
The hon. Gentleman is talking nonsense.
Now the Government have had to table amendments to meet precisely the point that my hon. Friend raised in Committee—the interaction between clause 3(4) and the rest of the Bill. I had hoped that, in moving the amendments, the Chief Secretary would begin with something of an apology to my hon. Friend.
Perhaps I can remind the Chief Secretary that, when he told my hon. Friend that he was talking nonsense, he went on to say:
It is sufficient to specify in the Bill the quorum of the court."—[Official Report, Standing Committee D, 20 November 1997; c. 64.]
We now learn that it is not sufficient simply to specify the quorum of the court. Ministers have been forced to reconsider and to make it clear that, even if its functions are delegated under subsection (4) to as few as two members, the quorum of the sub-committee must be seven. That is an improvement on the arrangements that the Chief Secretary put to the Standing Committee. I look forward to the expert opinion on that improvement which I know my hon. Friend the Member for Bury St. Edmunds will shortly give.
Amendment No. 42—something else that the Government have had to reconsider—is certainly an improvement. The Opposition welcome the propriety introduced there. These are late changes to the Bill. I sometimes wonder whether Ministers who take great pride in claiming credit for legislation are also prepared to take credit for improving the drafting instructions sent to counsel, presumably some time last autumn, which have now had to be rapidly revised.
We have tabled amendment No. 14. Even with the safeguard that amendment No. 41 provides, which we welcome, it is wrong to delegate to as few as two people the functions of the sub-committee. That happens in some companies, certainly very small companies. I have served on an audit committee and a remuneration committee. Indeed, I have chaired an audit committee of as few as two directors. But I have always felt uncomfortable about doing so. It has always been one of the arguments for strengthening the role of non-executive directors and improving corporate governance that one does not get into the position, especially on matters affecting remuneration, in which as few as two people can decide the large sums of shareholders' money paid.
We are not talking here of some very small company. We are talking about the Bank of England and the most major functions that are now to be entrusted to it. We think that, as a minimum, the quorum ought to be three or four members, but we prefer to delete the subsection altogether. I am happy to give the Chief Secretary one last chance to persuade us that we should not.

Mr. Ruffley: I shall keep my remarks brief, because my hon. Friend the Member for Sevenoaks (Mr. Fallon) has set out clearly the burden of our argument. I was surprised—astonished is probably a better word—that, in Committee, the Chief Secretary did not pick up the non-partisan point that, while schedule 1(13)(2) provides for a quorum of nine for the sub-committee of the court of directors, in practice, it would be possible to sub-sub-delegate to a quorum of two. It is not called a quorum of two, but the provision is for two of the directors to exercise powers on behalf of the whole of the sub-committee. The Chief Secretary denied that, and called it nonsense, but it is clearly the effect of the provision as drafted.
With amendment No. 14, we are merely drawing attention to the unfortunate state of affairs where decisions relating to the important functions discharged by the court of directors could be taken by as few as two individuals. The Chief Secretary says that the whole of


the court will be responsible: there will be collective and corporate responsibility for the actions of those two individuals—if, indeed, two individuals take the decision. He is right, but that is not an argument to prove that the amendment is of no effect.
If everything done in the name of the committee is ultimately the responsibility of the committee, why bother having a quorum of any number? By that argument, there is no logical reason for having quorums at all—we might as well say that one individual can take a decision, and justify that by saying that, at the end of the day, the whole committee is responsible for what that individual does.
It was surprising that the Chief Secretary did not acknowledge that what is effectively a sub-sub-delegation is a potentially dangerous state of affairs. My hon. Friend the Member for Sevenoaks rightly pointed out that we are not dealing with a small or medium-sized company; we are talking about the functions to be discharged by the court of the Bank of England. It is unfortunate that the Bill as it stands would allow as few as two people to take such important decisions. We tabled the amendment to ensure that those potential unfortunate consequences do not come to pass, and, in that spirit of non-political partisanship, I support amendment No. 14.

Amendment agreed to.

Amendment made: No. 42, in page 2, line 25, at end insert—
'(3A) If a member of the sub-committee has any direct or indirect interest in any dealing or business with the Bank which falls to be considered by the sub-committee—

he shall disclose his interest to the sub—committee when it considers the dealing or business, and
he shall have no vote in proceedings of the sub-committee in relation to any question arising from its consideration of the dealing or business, unless the sub-committee has resolved that the interest does not give rise to a conflict of interest.

(3B) In any proceedings of the sub-committee, a member shall have no vote in relation to any question arising which touches or concerns him but shall withdraw and be absent during the debate of any matter in which he is concerned.
(3C) Subject to subsections (2A) to (3B), the sub-committee shall determine its own procedure.'—[Mr. Darling.]

Clause 11

OBJECTIVES

Mr. Mitchell: I beg to move amendment No. 25, in page 5, line 2, after 'and', insert
'the highest possible levels of employment, and'.

Mr. Deputy Speaker (Mr. Michael J. Martin): With this, it will be convenient to discuss the following amendments: No. 26, in page 5, line 4, leave out 'employment' and insert
'the level of the exchange rate.'.
No. 1, in clause 12, page 5, line 9, at end insert,
'or
(c) in the event of a conflict between the objectives of economic policy, how that conflict is to be resolved.'.
No. 27, in page 5, line 9, at end insert—
'(1A) In sub-paragraph 1(a), "price" includes the price of houses and land.'.

No. 2, in page 5, line 10, leave out 'both' and insert 'all'.
No. 33, in clause 19, page 8, line 40, leave out 'extreme'.

Mr. Mitchell: This is a Bill to bury Keynes, who was mentioned earlier in our debate. It would be better titled "The Coronation, Enthronement and Miscellaneous Provisions of Eddie George Bill". With my amendment, I want to provide a two-buttock throne—or two thrones, one for each buttock—so that he has objectives other than the single objective that the Government have given him.
I can see why the Government have introduced the Bill: they see it as a measure that will, first, win the confidence of finance and international money markets; and, secondly, commit the Government and the country to stability. The hope is that, if we kneel before finance, show that we are in awe of it and do its bidding, it will be nice and kind to us, and we shall not have to face the problems that we have faced in the past.
However, it is important that, rather than include only the objectives of bankers, we put in the Bill some of the objectives that are important to the people. Those objectives centre on full employment and economic growth, and it is those subjects I want to insert in the Bill as basic considerations for the Bank of England.
I feel that the decision to hand over control of the enormously powerful management lever of interest rates is a mistake. Interest rates control everything in the economy, and are the basic tool of management. They damp down or boost the economy, and control the rate of growth and the exchange rate. Changes in interest rates can lead either to deflation or to expansion. They are the basic, most essential weapon, yet here we are—a democratically elected Government—handing control of them to an appointed Governor of the Bank of England.
The Bank does not represent the interests of the mass of the people of this country—it represents the interests of finance, which have never been favourable to those of the people. I am suspicious of the priorities of finance, and those priorities are bound to be dominant in the Bank of England, which is located in the City and represents the City's views. Giving the Bank control of interest rates is a mistake, and it will not lead to stability, as is intended.
Indeed, the decision to give the Governor the power to raise interest rates has already led to instability, in that rates have been raised four or five times, people are beginning to complain about the rise in their mortgage repayments, and the pound is now overvalued. A move intended to bring stability has actually been destabilising.
6.45 pm
That is implicit in the whole operation: if we are going to manage the economy by means of interest rates and we give the Bank of England control over interest rates, its highest priority in any situation will be to raise interest rates, and it will deal with any problem by raising interest rates. In turn, interest rates affect the exchange rate, and, in the present circumstances, the exchange rate has risen. That effect has been amplified by events in Europe,


because the instability and uncertainty there about what will happen in respect of monetary union, which I hope falls apart as quickly as possible—

Mr. Quentin Davies: indicated dissent.

Mr. Mitchell: The hon. Gentleman laughs, but it almost certainly will fall apart. That is my prediction, and I will take a side bet from him on that.
Reaching monetary union has caused great instability in Europe—it is like the reign of virtue, in that it would be a nice thing to have, but is very difficult to get to. Those difficulties are bringing money out of Europe into sterling and forcing up the exchange rate. Sterling is a better bet when there are high interest rates.
In Germany, there is a deliberate policy to reduce the exchange rate and depreciate the currency, because that is the only way to expand the economy after the rigours of Maastricht's deflation. The Germans are going in for what might be called competitive devaluation—if we did it, it would certainly be called that. The result is that the pound is now grossly out of kilter with other European currencies.
Two nights ago, a major plastics manufacturer told the all-party group on manufacturing industry that his products were now 25 per cent. less competitive than they were a year ago. Last night, I discussed the employment situation in Grimsby with representatives of Birds Eye Foods Ltd., which is shedding 450 jobs in Grimsby. One of the reasons is the bovine spongiform encephalopathy crisis, but the other is that products produced in this country are now 25 per cent. less competitive in the Dutch and German markets than they were before the rise in the pound began.
We have the insanity of the economy being managed simply by interest rates and that power being given to the Bank of England, which has led to a destabilising deflation in the economy. It is as if our only weapon with which to manage the economy is to bash the engine of growth with a large heavy hammer—that is essentially what we are doing in bashing manufacturing.
That is why I want to put other objectives in the Bill. Amendment No. 26 would insert the effect on the level of the exchange rate as a factor to be taken into account when interest rate increases were being considered, because today's European uncertainties mean that such effects are disproportionate. I feel that we must introduce other objectives, because I do not trust the priorities or skills of financiers and those drawn from a financial background—the sort of people who sit on the Monetary Policy Committee of the Bank of England. I feel that distrust because bankers have never served the interests of the people, and I do not suppose that they will suddenly start to do so.
I recall the famous New Zealand poem that was penned when Sir Otto Niemeyer, from the Bank of England, went out to New Zealand in 1931 to tell the authorities how to deal with the depression. He said that they should act according to a simple formula, "Put up interest rates, fire people." The New Zealand poet, Ard Fairburn, wrote:
The heart is gold,
The name is Otto
Women and children first, the motto".

That is what always happens—interest rates are raised to pass the punishment on to the people.
Amendment No. 27 calls for a proper measure of inflation, because, if the economy is run on the basis of the inflation rate, it must be properly calculated. The retail prices index is an inadequate, unsatisfactory measure of inflation. Harold Macmillan once said that managing the economy with the information available to him was like trying to catch a train with a 19th-century edition of Bradshaw. Managing the economy according to the RPI is rather like trying to navigate the M25 with a 1936 RAC map of the road system. It is not a relevant measure. I believe that it is entirely wrong to make it the dominant consideration for the Bank of England.
One of the essential problems with inflation is that it is driven by assets as well as those factors that feature in the RPI. That is why amendment No. 27 would include house prices in any consideration of price stability. Inflation is usually caused by loose credit, such as the credit explosion that Nigel Lawson produced in the late 1980s when he was Chancellor. That leads to an enormous asset explosion, particularly in house prices. Such a factor should be included in the measurement of inflation that the Bank of England must take into account.
I object to managing the economy according to keeping the rate of inflation down on the basis of interest rates. Any fool can defeat inflation. The previous Conservative Government managed that pretty well, and qualified for that description as well. All one has to do to reduce inflation is to put people out of work. Unemployment went from 1.4 million in 1979 to more than 3 million in the early 1980s, and reached that level again in the early 1990s. That is why the inflation rate was reduced. It was simply a question of producing a graveyard of workers. Once that happens, inflation falls. That is what the Conservatives duly did.
There is no reason why an obsession with inflation should be the target for the Bank of England; nor should it dominate policy. One cannot have a decent rate of growth and keep inflation at 2.5 per cent. If one had growth at 5 per cent., inflation would inevitably rise above 2.5 per cent., because inflation is associated with growth. It is not true that a reduction in inflation leads to growth. There is no causal connection. Inflation is a characteristic of growth.
For practical purposes, inflation is dead. If one seeks to question that claim, consider the impact of the financial crisis that has hit the far eastern economies. Most of those economies have already devalued their currencies, and the others will follow suit. Their manufactured goods will come pouring into our country at low prices. That will aid our struggle with inflation, because it is won by putting people out of work and making imports cheap, so that people do not buy domestic products. That is ruinous for the domestic economy.
We have suffered from such problems in the past, and they are beginning to re-occur. Closures and unemployment in manufacturing are already being announced, and the situation will become worse in the coming year. We have already had warnings about that from British Steel. A delegation from the Inter-Parliamentary Union that visited Japan was also warned about the impact of the current financial crisis on Japanese and Korean investment in this country. Our manufacturers are already complaining about the problems that they are suffering.
The emphasis throughout the economy is on the coming deflation, which will hit it soon. It is the consequence of one-club golfing, with interest rates as the only method of economic management, carried out on the basis of an inflation-defeating agenda. That policy is not carried out according to any scientific fashion; it is not as though the people in charge know what they are doing. All they are doing is hitting the economy with a heavy hammer.
Other objectives need to be included in the management of the economy. The economic management requirements of the Bank of England should not be tied simply to the level of inflation, as measured by the faulty mechanism of the RPI. The Labour party's objectives must be, are and always will be jobs and growth, in order to maximise the living standards of our people. Those are essential parts of Labour policy. We can achieve nothing unless we achieve economic growth and full employment. That means that other considerations must guide the Bank of England.
I concede reluctantly that, by force majeure, control of economic policy will be handed to the Bank of England. I am opposed to that, but it would be better if it was set a dual target relating not only to the level of inflation, but to the level of employment. Growth should also be included in the second part of the equation. For that reason, amendment No. 25 states that the objectives of the Bank of England in relation to monetary policy should be geared to the
highest possible levels of employment".
I do not believe that that is a dangerously revolutionary or radical step. That consideration should be included. The Government have mentioned it in clause 11(b), but inflation is the dominant consideration. I want employment to be an equal consideration.
Other central banks have made employment one of their objectives. It is only in New Zealand that inflation is the exclusive obsession, as it is in this country. According to the New Zealand experiment, a written agreement was drawn up between the Reserve bank of New Zealand and the Government to maintain a fixed inflation target, but that has proved disastrous. The experiment has been conducted according to the policy followed in Britain—interest rates have been put up, with the result that the value of the dollar has gone up. Unemployment is therefore rising, and the New Zealand economy is suffering. That will always be the case as long as we opt for such an automatic mechanism of interest rate increases.
I therefore want to require the Bank of England to study other considerations, particularly the maximum level of employment, and to bear in mind the effects of its decisions on the exchange rate. The amendments would guarantee that. That would be a valuable experience for the Bank, because, instead of the easy automatic reflex of putting up interest rates to combat every possible problem, it would be forced to calculate the consequences. It would be forced to work out the effects on the real economy—that of jobs, growth and a competitive industry which can compete in an international market.
That would be a valuable learning process for the Bank of England, but it can happen only if the Bill makes employment and growth, as well as the rate of inflation, matters which it must consider.

Mr. Heathcoat-Amory: It is a pleasure to follow the hon. Member for Great Grimsby (Mr. Mitchell), because

he is becoming a rather distinctive voice on the Labour Benches. That used not to be the case. We used to hear a lot of concern expressed by Labour Members about manufacturing industry. I share many of those concerns, because I, too, have a manufacturing background and I represent a constituency with a surprising amount of manufacturing in it. I have always listened carefully to other hon. Members who have expressed similar worries, particularly about the exchange rate. I am afraid that the new Labour party has rather abandoned its roots, so I was particularly struck by the way in which the hon. Gentleman related his concerns about the Bill to worries about the future of the manufacturing industry. Those arguments must be taken seriously.
On Second Reading, the hon. Gentleman spoke along similar lines. On that occasion some of his worries were also expressed by a number of his hon. Friends, most notably the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) and the right hon. Member for Llanelli (Mr. Davies). He summed up his worries about the Bill by saying that the Government had a professed aim of greater devolution of powers from bureaucracy to democracy whereas the Bill was designed to make the move in the opposite direction by transferring power from democracy to bureaucracy. I think that that sums up some more general worries about the Bill.
Unfortunately, many of those voices were not represented in the Standing Committee. I believe that all such hon. Members were excluded from the Standing Committee deliberately and I am afraid that it was packed with many new Members who were most unwilling to speak out about any anxieties that they had; indeed, they hardly said anything, so legitimate worries about the Bill went more or less undebated in Committee, which was a pity.
7 pm
However, this is a new debate on Report, and we have before us an unanswered and unresolved question: how will the Government reconcile their various economic objectives if the going gets tough? Conflicts do arise in economic policy from time to time. The Government are lucky at the minute. They have inherited a golden legacy of steady growth, low inflation and falling unemployment. Things are extremely stable and, on the whole, are going well, although I am afraid inflation is starting to nudge up again and I would not be confident that unemployment will continue to fall throughout the year. Dangers lie ahead.
The hon. Member for Great Grimsby was right in saying that driving the British economy is not an exact science. He gave several illustrations of how difficult it is. A permanent secretary once said to me that running the economy from the point of view of the Treasury was like driving a car with the windscreen blacked out and the rear-view mirrors broken: one certainly did not know where one was going; one had some idea of where one was, but little idea even about where one had just been. That is the difficulty about trying to apply exact science to the setting of interest rates.
To start with, we must be clear in our minds about what the Bill does as it stands. It gives overriding priority to price stability and puts the maintenance of price stability into the hands of an unelected committee, which is given total discretion in setting short-term interest rates.
Conservative Members support a low-inflation strategy. We give way to no one in our belief that it is essential to break any inflationary tendencies in the economy and establish a permanent low-inflation culture. We were far advanced on the way to doing so—we met our inflation target of 2½ per cent. or less—by the date of the general election.
However, we know that setting up an independent Bank of England is not necessarily—and certainly not sufficiently—the way to achieve low inflation, because plenty of independent central banks in the world have fairly poor inflation records. Historians will know that the Weimar republic had an independent central bank called the Reichsbank, which was not very successful. Similarly, as the previous Government's record shows, it is possible to establish low inflation and to achieve a low inflation target without an independent central bank, by using the full array of weapons at the disposal of any Chancellor—monetary weapons, taxation and expenditure. We do not agree that giving independence to a central bank is the only way to achieve low inflation.
Moreover, there are dangers in making a mechanical change without having established a low-inflation credential and record. If the Bill as drafted becomes law, if we run into a recession in a few years' time, with unemployment starting to increase, and if inflation still stubbornly remains above—perhaps only just above—the target rate of 2½ per cent., the Bank of England will be obliged to give priority to reducing inflation. It may well continue to increase interest rates, even in the teeth of a recession.
Let us suppose that, alternatively, the economy experiences a supply side shock. Commodity prices might start to rise. Oil prices, which have sometimes increased very fast, might do so again. That might feed through into an increased general index of prices and the retail prices index might increase. In those circumstances, the only weapon at the disposal of the Bank of England and the Monetary Policy Committee of the Bank will be to increase interest rates, and that could easily feed through into higher unemployment. Clause 19 contains emergency provision for all these arrangements to be abandoned and for the Bank to give way to the Treasury. However, if there were a milder shock and inflation drifted up owing to supply side influences, the Bank would be obliged to increase interest rates, not because it thought it necessary, but because it would be required by law to do so.
One can contrast the Bank's lack of discretion concerning policy generally with the example of the Federal Reserve bank of the United States, which does not have an overriding commitment to low inflation. It has several equal objectives, including the maintenance of employment. That bank has been very successful in balancing all those objectives and achieving low inflation combined with low unemployment. Obviously, the overriding commitment to price stability is unnecessary.
Therefore I believe that the hon. Member for Great Grimsby and other hon. Members who have spoken on the subject previously are right to be worried and to ask the Government what they would do in certain eventualities. The Government certainly did not understand that dilemma earlier in the Bill's passage.
I am glad that the Chief Secretary is to respond to the debate because he will recall that he got into a tremendous muddle on Second Reading, trying to explain how the Government did not have as an overriding priority the maintenance of price stability. He was asked about that by the right hon. Member for Caernarfon (Mr. Wigley), who pointed out that the Bill did give that priority, and the Chief Secretary said:
The right hon. Gentleman is mistaken.
When the right hon. Member for Caernarfon persisted and said that the other Government objectives were subsidiary to the anti-inflation drive, the Chief Secretary said:
The right hon. Gentleman is reading it the-wrong way round."—[Official Report, 11 November 1997; Vol. 300, c. 712.]
I believe that, on reflection, the Chief Secretary will realise that actually it was he who got that wrong. The beginning of wisdom is at least to agree about where we are at the minute, so I should be grateful if he would confirm the fact that the commitment to price stability is overriding, and will be by law. I ask him to confirm his understanding of that position, which is little more than asking him to refer to clause 11.
However, we want to ask the Chief Secretary what will happen when there is a conflict between those two objectives, especially if we beget a split between fiscal policy and monetary policy. We all know that budget decisions, which are broadly fiscal, affect inflation, directly by influencing prices and indirectly through monetary factors or the influence of debt management. From now on—this is another change introduced by the Bill—debt management will be taken away from the Bank of England and given to another quango that is controlled by the Treasury.
The way in which debt is managed has a big effect on monetary policy. Whether the Treasury sells debt to the banking sector or the non-banking sector has a great effect on the quantity of money in circulation, and therefore on eventual price levels. It is quite clear—this is a statement and not an opinion—that the Government will affect the dealings of the Bank of England. Therefore, the two could move in opposite directions.
This is not mere speculation about what might happen in future in this country: there are plenty of examples of its happening elsewhere in the world. We discussed the matter at some length in Committee, but I shall refer only to the two best examples to which we alluded. The first concerns the United States in the 1980s under the presidency of Ronald Reagan, whose budgetary and fiscal policies were, by and large, expansionary and potentially inflationary. That situation was dealt with by the Federal Reserve bank under Paul Volcker, who had to put up interest rates very sharply. There was a split between the Executive, who were pulling in one direction, and the monetary authorities, which were pulling in the other.
Another example closer to home is what happened during the period following German reunification. The West German Government failed to finance the cost of reunification by increasing taxes or cutting other expenditure, so they ran a loose fiscal policy and put all the strain of the German anti-inflation drive on to the Bundesbank, which increased interest rates sharply. We now know that that was a major factor in the destruction of the exchange rate mechanism.
Even closer to home, the July Budget sowed the seeds of a potential divergence between monetary and fiscal policies. Instead of dealing with consumption—which the


Chancellor said was in danger of overheating—he taxed savings. Inflation is still above the Government's target. Therefore, the strain had to be taken by the Bank of England, which has increased interest rates four times in addition to the increase that the Chancellor introduced before he transferred monetary policy to the Bank. So there have been five interest rate increases since the Budget.

Mr. Quentin Davies: I am grateful to my right hon. Friend, whose speech I am following with great care. He has made some extremely powerful points. Is he aware that, in answer to a question that I posed in the Treasury Committee, the Governor of the Bank of England acknowledged quite explicitly that, had the Chancellor done what he obviously should have done in the conjunction of last summer and borne down on consumption and incentivised savings—he did exactly the opposite, and taxed savings with the pensions tax and reduced consumption taxes—the burden on monetary policy would have been significantly less and we would now be enjoying lower interest rates and lower sterling parity?

Mr. Heathcoat-Amory: I am very interested in my hon. Friend's comments. He provides powerful and authoritative backing for my point. I had not realised that the Governor had said that—although I am not altogether surprised. It is now generally accepted that the Government made a colossal miscalculation in targeting people who save. They failed to draw expenditure away from consumption—if that was their aim. If the Government are trying to provide an alternative to the welfare state, they should encourage rather than cut savings. The Government are making mistakes not only in each Budget but in each Treasury announcement. They compounded their attack on pension funds last year by announcing the destruction of personal equity plans and tax-exempt special savings accounts and by capping their successor at £50,000. The Government have made a series of mistakes that throw the strain of the anti-inflationary strategy on to the Bank of England.
Amendment No. 1, and the consequential amendment No. 2, ask the Government to explain themselves rather than expecting other people to sort out the mess. It may have been a rather cunning move on the Chancellor's part to try to pass to others the unpleasant business of raising interest rates. In that way the Chancellor hopes to avoid the hostility that attaches to those who increase people's mortgage payments, which is a form of taxation, in complete contradiction to everything that he promised before the election. I do not think that the right hon. Gentleman's plan will succeed because he still has responsibility for such matters—even if he has handed operational matters to the Bank of England.
Our amendment seeks to force the Government to explain how such matters will be resolved. The Government have an inflation target, which is currently 2½ per cent., and several other desirable objectives—two of which are mentioned in the Bill. However, if there is conflict between the various objectives, we want to know how that will be tackled and who will do it. Our amendment also seeks the Government's explanation of the monetary and inflationary consequences of their policies so that they do not set the Bank of England an impossible task.
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As things stand, I seriously believe that, when the economy hits some rough patches, there will be much recrimination and misunderstanding. There is the danger of a direct confrontation between the Bank of England and the Government because the Bank will try to deliver on the inflation objectives but will be hampered in that aim—and possibly prevented from doing so—by the actions of the Chancellor of the Exchequer and the Government who will pull in a different direction. The Government must respond to that serious issue. Our amendments seek to force the Government to think carefully about the matter and to tell the House what they will do.

Sir Michael Spicer: I agree with the hon. Member for Great Grimsby (Mr. Mitchell) on many matters, particularly on the subject of Europe—although we sometimes battle against each other on the "Target" programme. The hon. Gentleman has some interesting contributions to make on European issues. I agree with the amendments' general proposition that Government must make choices between conflicting objectives. My right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) made the same point from the Front Bench.
I do not agree so much with the objectives that the hon. Gentleman is pursuing in some of his amendments. Like my right hon. Friend the Member for Wells, I think that balancing employment against inflation is a false choice. I agree with my right hon. Friend that, when it comes to conflicting objectives, the real choice might lie between fiscal policy and monetary policy. If the Bill is enacted, one part of economic policy will be handed over to a non-elected body, which will be told to get on with it. To that extent, all sorts of potential conflicts—to use my right hon. Friend's words—may emerge in terms of economic policy. As the Government threw out proposed new clause 1, Parliament will have no voice in decisions about conflicting objectives. One feels for Labour Members, who are getting increasingly restless. Suddenly they are becoming frightened. Members of the Treasury Committee, on which I serve, constantly try to probe witnesses in the hope that they will say that the effect of the Bill should be diluted. The hon. Member for Great Grimsby has the merit of trying to amend the Bill to build in different objectives, which is a legitimate aim, although the Government will presumably reject the amendments. As the Bill stands, all the other policy objectives are to be made subject to that of price stability.
The hon. Gentleman argued that price stability was not an important component of employment policy. I do not agree; I entirely accept the position outlined by my right hon. Friend. The hon. Gentleman may find historical examples where growth has been accompanied by inflation, but he would have to concede that for growth in jobs to take place, there must be low inflation and high competitiveness. High savings go with low inflation, because if there is high inflation, there is no point in saving, so the resources from which to invest in jobs do not exist.
It is possible to find historical precedents of inflation going hand in hand with growth, but over time countries that have suffered inflation and especially hyper-inflation


have not experienced growth—in many cases their employment and manufacturing have collapsed. I accept that price stability is a vital part of a healthy economy.

Mr. Mitchell: Having argued well so far, the hon. Gentleman is moving towards a false conclusion. Growth is inevitably associated with increasing inflation. I can think of only two examples of perfect price stability this century: Salazar's Portugal, and the United States in the three years up to the great crash of 1929. Those are examples of almost perfect price stability, and what growth did that generate?

Sir Michael Spicer: There are many examples in history, ranging from the Weimar republic forwards and backwards, and all over the world, in which, because a currency has collapsed, the real economy has collapsed with it. Historical precedents support the view that price stability is accompanied over time by a sound economy.
I agree with the hon. Gentleman on amendment No. 26, which replaces "employment" with
the level of the exchange rate",
if that arises from his worry about false exchange rates, which may occur if an independent central bank pushes us towards a single currency.
We have only to look across the channel to see what has happened in France. It has been extraordinary over the past 24 hours. The socialist Government in France seem to believe their own claim that the massive unemployment there has nothing to do with the false exchange rate that they created against the deutschmark, and that they will adopt expenditure policies, the like of which the hon. Gentleman may want to have incorporated in the Bill under his amendment No. 26. I would not agree with that, but I agree with him when he implies that false exchange rates have a lot to do with unemployment.
I do not approve of the idea of taking away a major slug of economic policy and handing it outside the control of Parliament, especially now that the Select Committee is to have no statutory say in the appointment of the board. I do not like that, for the reasons stated by my right hon. Friend. The grave distortions that can emerge between monetary and fiscal policy in that context are self-evident.
Once that decision has been taken—I accept the Government's premise that price stability is an important feature—it is right that the Bill should explicitly restrict the Monetary Policy Committee to dealing with a specific policy objective. I cannot see any argument for handing the whole of economic policy, which is effectively the hon. Gentleman's aim, outside the sphere of Government and Parliament. That is the principle behind the amendments.
The hon. Member for Great Grimsby does not like the price stability objective, and he probably does not like the fact that the Bank of England is to run it, so he proposes giving everything to the Bank of England: employment policy, as he defines it, exchange rate policy—everything should be given to an unelected body. That is the end of democracy. He argues strongly, as I do, against the move in Europe towards stripping our Parliament of its powers and handing them to Europe, yet his amendments would strip Parliament and our elected Government of the ability to make choices between economic policies. That is very serious indeed.
Although I sympathise with Labour Members who are suddenly waking up to the implications of the Bill, the way to put it right is to throw out the entire Bill, not to agree to the hon. Gentleman's amendments. He is effectively saying, "We have put all those powers outside our control, so let us give the Bank even more powers. Let it make the choices, so that Parliament and the Government do not have to do any work, because everything has been given to an unelected outside body."
That cannot be the solution to the worries and dilemmas that many of us share with the hon. Gentleman. The answer is for him to vote against Third Reading and to get 300 or 400 of his colleagues to do the same, and to throw out the Bill. He has about two hours in which to go round the bars and collect all his hon. Friends. We will be with him in the Lobby, if he is prepared to do that.
It is wrong to say, "We do not like giving the Bank of England powers, so let us give it even more powers and choices in the running of our economy." Although I share with the hon. Gentleman many of his initial premises, I could never agree to a group of amendments that gave the Bank of England not only the operational powers to carry out the policy that the Government have set for it in terms of price stability, but the choice between unemployment policy, fiscal policy and so on. The amendments are nonsense in the context of the hon. Gentleman's objectives. I hope that the House will vote against them.

Mr. Gibb: I support amendment No. 1. Clauses 11 and 12 are key to the monetary objectives of the Bank of England, once it achieves independence. Clause 11 states:
In relation to monetary policy, the objectives of the Bank of England shall be—
(a) to maintain price stability".
Subsection (b) continues:
subject to that, to support the economic policy of Her Majesty's Government".
It is interesting how the phrase "subject to" has crept into the drafting of the Bill, whereas in letters from the Chancellor to the Governor of the Bank of England and to the Chairman of the Treasury Select Committee, the phrase has always been "without prejudice to". I do not want to go into semantics to see how distinct is the difference between those two phrases, but "subject to" subjugates the pursuit of the Government's other economic objectives to the overriding objective of maintaining price stability.
Clause 12(1)(a) enables the Treasury to write to the Bank of England to set out what the Government understand by the phrase "price stability". Subsection (1)(b) enables the Treasury to write to the Bank of England to set out its economic policy to enable the Bank of England to conduct its monetary policy in accordance with Government wishes.
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There is, however, no mention in clause 12 of what the Bank of England should do when there is a conflict between the Government's economic objectives and the Bank of England's overriding objective of maintaining price stability. That is why amendment No. 1 seeks to add a new paragraph (c), which states:
in the event of a conflict between the objectives of economic policy, how that conflict is to be resolved.


That enables the Government to write to the Bank of England to specify how that should be done.
There are three principal areas where there could be an important conflict between monetary policy being conducted by the Bank of England and other economic measures being taken by the Treasury and the Government. The first relates to the exchange rate. The Bill gives the Treasury responsibility for conducting exchange rate policy. At the moment, we have a high level of sterling and the Government are also maintaining a tight monetary policy because they fear the re-emergence of inflationary pressures in the economy. Therefore, even today we have the possibility of such a conflict.
The position could arise where the Government were concerned about the high level of sterling. Farmers throughout Britain have lobbied the House this week and they share that concern. As a consequence, the Treasury could conduct a foreign exchange policy of trying to bring down the level of sterling. It would do that by selling sterling into the market. The result of that would be an increase in the money supply in Britain.
Meanwhile, the Bank of England would try to maintain price stability and would monitor the money supply. When it saw the increase in the money supply, the Monetary Policy Committee would want to trigger higher interest rates in order to counter that. It would not know that that increase in the money supply was the result of a deliberate action taken by the Treasury to bring sterling down by selling sterling into the market. It would look at the data and believe the increase to be a normal activity in the economy, along with the shocks and various other influences that affect it. The amendment enables the Treasury to tell the Bank of England what its exchange rate policy is because it sets out what it should do in the case of a conflict.
In Committee, the Paymaster General and other Ministers were asked what the Government's exchange policy was, to which there was no response. Time after time, we asked the Paymaster General how such a conflict would be resolved. It is a genuine conflict. No Minister seems to be able to say how such a conflict should be tackled. At the moment, the Treasury is responsible for interest rate and exchange rate policy, but when the two are split and the knowledge of the two different entities is divorced, there is no way in which one hand will know what the other is doing and there will be conflict. We could end up with the dog chasing the tail. The Government could sell sterling to the market, thus increasing the money supply, leading to their raising interest rates further and pushing sterling up. The Treasury would sell more sterling into the market to bring the level of sterling down, and the vicious circle would continue. It is a recipe for chaos.
The second area where potential conflict exists is in the management of Government debt, which is to be handed over to a quango of the Treasury. Again, there are different ways in which to manage debt. There is, for example, the fully funded method of managing debt. If the Treasury, which is handling debt management, decides to maintain a fully funded policy, and if debt is sold to the non-banking sector when there is a public sector borrowing requirement, the money supply will decrease.
Meanwhile, the Bank of England could well be trying to ease monetary policy because it was concerned about deflationary pressures in the economy. Again, one hand

would not know what the other was doing. The activities of the debt management side of the Treasury could do precisely the opposite of what the Bank of England was doing.
The final area of conflict is that between fiscal and monetary policies. Again, fiscal policy makers are divorced from those conducting monetary policy. The Treasury could be busy relaxing fiscal policy for various social reasons—to improve incentives in the economy or to increase spending in certain areas. Meanwhile, the Bank of England, fearful of inflationary pressures in the economy, could be raising interest rates, pursuing a tight monetary policy.
As there is no symbiotic relationship between the two organisations, one could be pursuing a policy directly opposite to that of the other. There would be no incentive in the Treasury to pursue a sensible fiscal policy because it would know that it was not responsible for inflation. All inflationary problems would be dealt with by the Bank of England and, again, there would be a recipe for higher interest rates than would otherwise be necessary.
In conclusion, the amendment seeks to enable that conflict to be sorted out, and to enable the Treasury to write to the Bank of England to put on the record how this inherent conflict, which arises from giving the Bank of England independence, should be resolved by those responsible for Britain's economic policy.

Dr. Cable: This is the best opportunity to say something on the substantive economics of the issue rather than on the constitutional issues that we dealt with before. I intend to speak against the amendments.
Clause 12, which relates to economic policy in general, has just been read out and it makes it clear that the Bill provides for multiple economic objectives. Clearly, if there is an emergency and large-scale unemployment, the Chancellor has powers under the Bill to give employment and growth priority. That flexibility is built into the legislation.
My main comments relate primarily to the speech by the hon. Member for Great Grimsby (Mr. Mitchell). He spoke at some length about sterling and the problems of exchange rates. We have heard more and more about the problems of sterling in the House. Treasury questions are increasingly populated with questions on that subject.
I am probably one of the relatively few people in the world who claim to have read the hon. Gentleman's book on the subject, which I think he wrote with a former Member who has now emigrated to New Zealand. It was an eloquent book, but it had throughout it a fallacy that he has perpetuated this evening, which is not distinguishing between the real and the nominal value of the exchange rate—an important distinction. It is perfectly possible to maintain the competitiveness of one's exchange rate while the value in the markets—the nominal value—is appreciating. That has happened in Germany where, during the past 30 years, the exchange rate has appreciated from DM11 to less than DM3 against sterling. For the most part, German exporters were more than able to maintain—or more than maintain—their competitiveness with the United Kingdom because we had an appallingly bad relative rate of inflation. If we think about real exchange rates rather than nominal rates, the problems raised by the hon. Gentleman are simply not applicable.
The hon. Gentleman is on sounder ground when he worries about the particular problem that we have now of an exchange rate that is overshooting in the markets. Overshooting in the markets occurs for one of two reasons. One we saw during the early days of Mrs. Thatcher and another in the early 1990s which directly arose from the lack of credibility of those who were carrying out monetary policy. We had a period of lax control of money, a very high rate of inflation and then, over-compensation through high interest rates. The whole purpose of the legislation and of an independent central bank is to prevent such a problem from arising again.
Sterling is also very high because of the EMU premium. We have consistently argued with the Government that they should not procrastinate over EMU membership, but should get on with having a referendum and consider at least early entry, as that would shorten the transition to our having stable exchange rates in relation to European countries. As long as the delay persists there will be uncertainty and an exchange rate premium, because the ecu will trade at a relatively soft rate. In other words, it will be more competitive than sterling would be on its own. The Liberal Democrat argument to deal with that problem is that the sooner we proceed to EMU, the sooner we shall eliminate many of the problems of volatility and over-valuation that have been described.

Mr. Nick St. Aubyn: We have heard for many years that the benefit of the euro is that we shall have a hard currency. Now we are hearing from the Liberal Democrats that the benefit will be that we shall have a soft currency. Does the hon. Gentleman understand why those who have doubts about the euro remain totally unconvinced by the arguments on this subject?

Dr. Cable: The possible answer to the hon. Gentleman's question is that people use the words "hard" and "soft" in totally different ways. The argument for belonging to EMU is that the euro will be hard, in the sense that it will have a low rate of inflation, but it may well have a rate that is competitive—one that devalues against the dollar and the yen. Both of those characteristics are possible and desirable, and we would welcome them.

Mr. St. Aubyn: Surely if there is to be a soft euro, it is because of the expectation that, with the participation of states such as Italy, the inflation rate will be higher. If one has a soft currency, there is a very high risk of inflation creeping into the system.

Dr. Cable: I do not think that the hon. Gentleman has read the financial press for many months, if not years. If he had, he would know that the inflation rate in Italy is now very low and that the Italian economy is one of the better managed economies in western Europe.
The other incompatibility that has been raised is the difference between fiscal and monetary policy. It is a genuine technical issue; it is also a political issue. It is perfectly possible for Governments—or, in this case, an independent central bank—to run a tight monetary policy and for it to be undermined by profligate fiscal policy. That is why the Liberal Democrats argue very strongly

that this measure should be followed by another, which we would call the Fiscal Responsibility Act, which would make a set of rules for fiscal policy to match those in the Bill. Were those complementary measures to be taken, many of the difficulties that have been described in this short debate would not exist.

Mr. Darling: This has been an extremely long debate for what is a fairly short point. I will try to reply in short measure.
My hon. Friend the Member for Great Grimsby (Mr. Mitchell) and I disagree on a central point. The Government believe that low inflation and price stability are an essential precondition for sustainable growth and high employment. One has only to look at the history of this country since the war—it had high inflation, which was into double figures in very recent memory, and the boom and bust, with swings between one extreme and another—to realise that instability was one of the main reasons why we have not had the long-term sustainable growth that competitor countries have had.
If my hon. Friend were to ask any investor or business what it wanted more than anything else, it would say that it wanted certainty and stability. That is why we attach so much importance to price stability. I know that my hon. Friend disagrees with that. I do not claim to have read the books that he wrote with our former colleague, Bryan Gould, but I know that central to their belief was the argument that rising inflation was not necessarily a bad thing. I have to disagree with him.
Where I do agree with my hon. Friend is that interest rate policy is not the only matter with which the Government need to concern themselves. We have made it clear that we intend to maintain fiscal as well as monetary stability. That is why we are ensuring that public spending will be maintained in a sustainable way and that is why we are taking steps to expand the capacity of the economy, so that it can grow in a sustainable way, as was not possible in the past.
Central to monetary stability are confidence and certainty. The rationale behind our setting up the Monetary Policy Committee is that the markets and the general public will know that the Government are serious about their commitment to long-term price stability. We have already seen the benefits of that, because long-term rates fell almost immediately following the announcement by my right hon. Friend the Chancellor earlier this year.
I shall now deal with a point that the Opposition made much of on Second Reading, and to which they returned in Committee. They should look at clause 11, which is written in plain terms. The key objectives of the Monetary Policy Committee are
to maintain price stability, and … subject to that, to support the economic policy of … Government, including"—
my hon. Friend the Member for Great Grimsby will no doubt note—
objectives for growth and employment.
It is precisely to encourage sustainable growth and employment that we want to ensure price stability. A plain reading of clause 11 makes it abundantly clear that the Bank, in achieving the Government's inflation target of 2.5 per cent., must have regard to the Government's other objectives—growth and employment. That means, among other things, that if there were some violent shock to the


economic system, the Monetary Policy Committee would have to take account of the Government's policy on growth and employment to decide the time frame in which it would reach the inflation target of 2.5 per cent.
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We have also made it clear that if the Bank does not believe that the inflation target will be met and that the rate will deviate by more than one percentage point from its target, it must write an open letter to the Chancellor explaining why the rate will not reach the target and the period within which the MPC expects to meet it. The point of all that is that the House and everybody else will be able to judge what the Bank is doing and be satisfied that it is acting in accordance with the strictures established by clause 11. It is as clear as day to anyone who wants to see it. The problem with the Opposition is that they are not concerned about clause 11. It is becoming increasingly clear that, after eight long months, they are edging towards outright opposition to the idea of giving the Bank operational independence. That is their real objection. They have no real interest in the wording or phraseology of particular clauses.
The Government are responsible for exchange rate policy and for fixing the inflation target. There is no conflict. The Chancellor of the Exchequer is, as always, accountable to the House for the overall conduct of economic policy, so there is no dubiety about the framework that we have established. We are ensuring that we get something that this country has wanted for many years: price stability and economic stability, which, more than anything else, will benefit the long-term prospects for growth and employment.

Mr. Mitchell: I am very disappointed at the Minister's reply, although I expected him to say what he did. The point that he made about the Government being responsible for exchange rate policy provokes me to ask: if they are responsible for exchange rate policy, why is the exchange rate so high? Given the manifest problems of industry and agriculture—the rise in imports, the difficulties with exports, the threat to close capacity and therefore lose jobs—why do not the Government act and exercise their responsibility for exchange rates by getting them down? The answer is, of course, that it is interest rates and the uncertainties in Europe that determine our current exchange rate and the current over-valuation, which will be disastrous. I do not agree with my right hon. Friend on that; nor do I agree with my right hon. Friend that low inflation is the precondition of economic growth.
I do not defend high inflation—nobody is advocating high inflation—but some degree of inflation is an inevitable concomitant of growth. There cannot be growth without some degree of inflation. We are making low inflation more important as a priority than growth. Growth and jobs should be the Government's central priority. Inflation should be treated as a residual, not the determining aim of policy, as seems to be imposed on the Bank of England. Although my right hon. Friend said that the Government can introduce objectives of growth and employment, and the Bank of England has to support that, the paramount requirement—according to Maastricht—is to maintain price stability, and subject to that, because it is paramount, to support the economic policy in respect of growth and employment.
I had hoped for some more concessions because we are embarking on a doomsday machine. We are locked into a target of 2.5 per cent. inflation, which risks doing severe damage to the economy. It is wrong of the Government to abdicate their democratic responsibility for economic growth and jobs to bankers, who will always act like bankers. However, there is no point in my going on because the new Government have decided their priorities and will pass this Bill tonight. They have a responsibility to be right in what they do and say, and I do not think that they are. We shall live to regret this day because of the inflexible requirements that the Bill imposes on us.
I realise that my fellow Members of Parliament want to get away, as I do. I was told that I am building up extraordinary resentment among northern Members. I am a northern Member, and my fellow northern Members are gathering on these Benches solicitously to persuade me. It would have been better to have discussed this matter in Committee. Given their large majority, the Government should not be frightened of appointing people with dissenting opinions to Standing Committees. Had they done so, we could have had a longer discussion in proper and appropriate circumstances, rather than trying to discuss this matter now, late at night, with hon. Members pressing to go home. It is a question of the Government's confidence in their priorities, which they should allow to be thrashed out in the appropriate environment.
I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14

PUBLICATION OF STATEMENTS ABOUT DECISIONS

Mr. Mitchell: I beg to move amendment No. 30, in page 5, line 41, at end insert
'and an estimate of its effect on inflation, economic growth, employment and the exchange rate.'.

Mr. Deputy Speaker: With this, it will be convenient to discuss the following amendments: No. 36, in page 6, line 2, after 'markets', insert
',act to restrict or control credit, or require deposits to be made with the Bank by lending institutions.'.

No. 37, in page 6, line 9, after 'markets', insert
'acting to restrict or control credit, or requiring deposits to be made with the Bank by lending institutions.'.

No. 38, in clause 15, page 6, line 23, after 'meeting', insert
'together with the economic analysis on which any decisions taken at the meeting were based.'.

No. 39, in page 6, line 27, after 'markets', insert
'act to restrict or control credit, or require deposits to be made with the Bank by lending institutions.'.

No. 16, in page 6, line 41, after 'record', insert
'the principal views expressed by individual members and'.

No. 40, in page 6, line 42, after second 'of', insert
',and the case put forward by,'.

No. 22, in schedule 3, page 23, line 2, at end insert
'and, if he exercises his right to speak, his views shall he recorded in any minutes published under section 15'.

Mr. Mitchell: I continue to build my campaign for the support and affection of northern Members.
This group includes two categories of amendments. The first category comprises amendments Nos. 30, 38 and 40, which require the Monetary Policy Committee and the Bank to tell us their views, the basis of their decisions and dissent, and the prospectus that will arise from their decisions. We want them to justify those views in terms of their expectations so that they can be questioned and discussed.
I do not believe in the wisdom of bankers and monetary experts. It seems to be a kind of Gadarene wisdom. One has only to watch City commentators on television; they appear on every channel whenever there is a change, or prospect of a change, in interest rates and all chant the same nonsense. They return unabashed the following week when their forecast has been proved wrong and say the opposite with equal confidence. That is not wisdom; it is a lemming-like philosophy.
I want bankers to learn on the job and justify what they do. Amendment No. 30 would require them to tell us what they think will result from their decisions. Let us have it spelt out so that we can judge it and assess whether they were accurate or wrong. Amendment No. 38 would require bankers to give the economic analysis on which their decisions were based and say why those decisions were taken. Amendment No. 40 requires bankers to give their individual views.
Those requirements are simple and straightforward. If the views are based on consideration and thought, those concerned will not be afraid to tell us what they are, so that we can judge them for ourselves. It is a process of popular education and of education for the Bank as well. After we set up Select Committees, it was noticeable how much more effective ministerial replies and defence of policy were. I hope to get the same from the Bank.
The remaining amendments, Nos. 36, 37 and 39, deal with a major problem in our economy: how we control credit. Over the years, there has been a shift away from managing the economy by direct control. Labour's post-war triumph was based largely on direct control of capital, labour and investment. When the Conservatives came to power in 1951, they shifted the balance by using interest rates as a financial stimulus. In the 1950s, interest rates became more important in economic management and generally went up. In 1972, continuing the process of relaxation, the Conservative Government introduced measures which effectively abolished the regulator and led to the first huge credit bubble.
In the 1980s, the process of removing controls continued. The corset was swept away until we were left managing the economy only by interest rates, which led to even bigger fluctuations than before. It was boom-and-bust fluctuation; credit bubbles were allowed to form and asset prices increased. Because house prices were increasing, people could borrow more. Asset prices increased further because more money was in circulation, until suddenly the Government had to act. They did so in 1990 by joining the exchange rate mechanism. The economy was deflated and the bubble was pricked.
It is ridiculous to manage the economy in a boom and bust way. However, it is implicit in our inability to manage credit rather than just use interest rates to squeeze credit and check credit booms. I want other requirements to be introduced. The Monetary Policy Committee could suggest other methods of controlling credit. For instance, it could limit the percentage of house value that would be lent in a mortgage. The Bank of England could require any lending institution to ask for deposits. Interest rates could be charged on those deposits and the deposits required could be varied according to the nature of the loan granted by an institution. It would be possible to overfund or underfund the public sector borrowing requirement.
I do not necessarily have the perfect means of controlling credit, but the simple measure of rationing credit through interest rates is not the only means. We should look at other ways of controlling credit, not just wash our hands and say that we cannot control it. If we abdicate the responsibility of looking for new methods of managing credit, we inevitably accept that boom and bust will continue. If the Government accept the amendments so that, as well as proposing changes in interest rates and market dealings, the Monetary Policy Committee looks at ways of managing, restricting and controlling credit, we shall have another weapon to deal with the problem. It will be more than one-club golfing.
Other means of dealing with the issue may be more effective and direct, or may be necessary to supplement interest rates. They may also lead to a smaller increase in interest rates than we have had in the past. I want the Monetary Policy Committee to be able to consider those options and recommend them if necessary.

Mr. Heathcoat-Amory: I, too, want the Government to provide and publish more information about their economic policy, particularly their monetary policy, which is why we tabled amendments Nos. 16 and 22. Amendment No. 16 relates to clause 15, which deals with the publication of minutes. The House will recall that my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke) established the procedure for the routine publication of the minutes of the meetings at which interest rates were set. That was a revolutionary advance, because for the first time outside commentators and the markets could see exactly how monetary policy was being set, and how interest rate decisions were being taken.
8 pm
At that time, the minutes described in some detail the views of the main participants. The interest rate was set by the Chancellor of the Exchequer: it was his decision alone, after consulting others and after taking the advice of, in particular, the Governor of the Bank of England. The views of the two main participants, the Chancellor and the Governor, dominated the subsequent minutes.
Our amendment seeks to extend that to include all the main participants, so that the views of every member of the Monetary Policy Committee are minuted. No longer will an individual or institution make the decision: it will be made by all the individuals on the Monetary Policy Committee, by vote if necessary. The views of all members will be just as important as the views of the Chancellor and the Governor were previously.
The Government came into office with a great commitment to openness and transparency, and supported the public's right to know. They followed that up recently


by publishing a White Paper called "Your Right to Know", in which they described a presumption in favour of openness. We all accept that a good deal of financial and Government information must be confidential. Market-sensitive information can be kept secret, as proposed in the White Paper. However, there is no case whatsoever for keeping secret the views of the members of the Monetary Policy Committee when the minutes are published six weeks later. After all, the Bill provides for their votes to be recorded, so it is a modest step forward to require their main views to be set out in those minutes.
The men and women on the Monetary Policy Committee are not accountable to the House. They will not even be the subject of confirmatory hearings. Therefore, it is important that we, in the outside world, know their views. If a group of individuals on the committee consistently get it right, their reputation will be enhanced, but we are entitled to know if some individuals always get it wrong.
Our proposal also provides a good defence against impropriety. We would have preferred confirmatory hearings to test the views of individuals before they are formally appointed to the committee. That was the opinion of the Treasury Select Committee, but for some mysterious reason the Labour members of that Committee did not back up their views by joining us in the Division Lobby earlier. This proposal is perhaps a poorer substitute, but at least it would salvage something of our earlier intentions if the views of those individuals were made known as they evolve through discussions on the Monetary Policy Committee.
We should extend that proposal to the Treasury representative on the Monetary Policy Committee. They may or may not attend, but they have the right to do so: they will have a voice, but no vote. It is important for the outside world to know of the Treasury's views as expressed at that meeting. We want to know what influence the Treasury has on the committee, what view it has on the direction of the economy and what impact budgetary decisions and fiscal policy have on the committee's deliberations. That can be done only if the minutes record the views of the Treasury representative expressed at that meeting.
There is no conceivable reason why our modest but important request should not be granted. It is entirely in line with the Government's expressed views about the public's right to know. We are not suggesting that the views of those individuals on a change in the interest rate should be made known to the markets immediately. There may be a case for keeping them back for a little while if a decision causes market disturbance, but it should be merely a delay, and not a permanent suppression of the views expressed. That may be particularly important if allegations are made that individuals or a group of members on the committee are biased or prejudiced in their actions. An individual who is usually wrong may be reappointed by the Chancellor because an election is coming up and the individual concerned is always in favour of expansion of the economy and low interest rates, which may help the Government of the day to win another term. The best defence against that is openness and disclosure, so that the world can see whether individuals justify their place on the committee by reason of their competence and record in judging the economy right.
For those reasons, I seriously urge the Government to give effect to their protestations of belief in openness, and accept these amendments in the spirit in which they are offered.

Mr. Gibb: I support my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) on amendment No. 16. Clause 15(4) provides for the minutes of the committee's deliberations to be published, and for voting preferences to be recorded, but it does not provide for the views expressed by members of the committee to be recorded. The Government are not providing information on the economic views held by members of the committee, and the Select Committee on the Treasury, when it participates in confirmatory hearings, will not be quizzing members of the committee on their economic views. Therefore, the only way that we can know their views is for them to be published in the minutes.
Economic policy and the conduct of monetary policy are not part of an exact science. That view has been backed up by eminent people such as Sam Brittan, Tim Congdon and Lord Eatwell. Those matters are of wider interest. People outside the confines of the Monetary Policy Committee and the Bank of England want to analyse the committee's deliberations, so that they can establish in the weeks, months and years ahead who was right and who was wrong. Decisions on monetary policy remedies depend on the forecasts provided by the committee. If an inflationary period is forecast, the committee will recommend to the Bank of England that it raises interest rates and tightens monetary policy. On the other hand, if the economic position is forecast to be deflationary, it will recommend a looser monetary policy and lower interest rates.
Such an economic analysis would be useful for the economy, for the country and for academic study. It would be useful to analyse the forecasts, so as to establish whether the recommended remedies have turned out to be correct. A wide debate of that kind took place for a few years, when we had the so-called Ken and Eddie show. Although their views were not necessarily recorded in the minutes, we could see the final recommendation. For example, we knew on one occasion that the Chancellor was recommending no interest rate rise when the Governor of the Bank of England was recommending a rise. In due course, the Chancellor was proved correct.
The debate that took place during the Ken and Eddie show informed the wider debate in the country as a whole. I urge members of the Government to remove the partisan expression from their faces, to consider seriously the effect that the amendment would have in raising the level of informed debate about the conduct of economic policy and to accept it.

The Economic Secretary to the Treasury (Mrs. Helen Liddell): I am always amused when the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) talks about the Ken and Eddie show. The point of the Bill is to rectify the failings of the Ken and Eddie show, during which partisan politics intervened in the setting of interest rates, to the economy's cost.
We resist the amendments, not because we are opposed to openness, but because many of them are unnecessary. They relate to parts of the Bill that already provide for openness. In other contexts, the amendments are


contradictory: in a number of respects, the amendments tabled by my hon. Friend the Member for Great Grimsby (Mr. Mitchell)—about which I shall say more shortly—contradict what he wants to achieve in relation to openness.
As we discussed the issues fully in Committee, I do not intend to delay the House unduly, but I think it necessary to deal with a number of points, in a reasoned way. I know that there has been criticism relating to the fulness of some of the information given in the minutes of Monetary Policy Committee discussions, and I am sure that the committee will take those criticisms on board; but I believe that the amendments would have a negative effect.
Speaking to amendment No. 30, my hon. Friend the Member for Great Grimsby spoke—as he had earlier—of the impact of our proposals on
inflation, economic growth, employment and the exchange rate".
The amendment is quite unnecessary. If it were adopted, the Bank of England would have to publish a statement about the effect of changes in monetary policy on inflation, economic growth, employment and the exchange rate every time such changes were made. The Bill already provides for the arrangements for monetary policy in the United Kingdom to be among the most open in the world, and, in particular, for the publication of a statement after the debates of the Monetary Policy Committee.
If a regular statement were published along the lines suggested by my hon. Friend, his amendment would be unnecessary. Press notices already accompany the conclusions of each MPC meeting, and, in the event of a change in interest rates, the main factors underlying the decision are set out—factors that, typically, include inflation, economic growth and the exchange rate. If my hon. Friend needs to be convinced, I suggest that he look at the notices that followed interest rate changes in August and November last year.
Amendments Nos. 36, 37 and 39 would have a contradictory effect. They would weaken the commitment to transparency, because they would allow the Bank to delay publication of a decision to impose credit controls, or to require deposits from lending institutions, if it decided that publication of that decision was likely to impede or frustrate the action.
I am aware of the commitment of my hon. Friend the Member for Great Grimsby to the concept of credit controls; indeed, we discussed such matters in detail during an Adjournment debate not long ago. My position has not changed since then: there is no evidence to suggest that credit controls would be effective when we have open, global capital markets. They can easily be circumvented. We know from our own economic history that such controls have been tried in the past, and have failed.
I refer my hon. Friend to the minutes of the August meeting of the Monetary Policy Committee, in which such quantitative controls were considered and rejected. There is no sign that the Bank cannot control inflation without credit controls; indeed, low and stable inflation over time, which is the aim of the Government's economic policy, should lead to less volatile interest rates. The volatility that we are currently experiencing is largely due to the

last Government's failure to take overall economic considerations into account in the run-up to a general election.

Mr. St. Aubyn: I am curious to know whether the Economic Secretary agrees that, although credit controls may not work, reserve requirements may be an important factor in the operation of monetary policies. That has been the case in a number of countries; does the hon. Lady see a role for such requirements here?
Will the Economic Secretary acknowledge that, for all her trenchant criticism of the last Government, they did at least meet the inflation target by the end of their tenure? Because of their tax-raising activities since the moment they took office, the present Government have signally failed to do the same.

Mrs. Liddell: That—if I may use an expression that I had cause to use to the hon. Gentleman in Committee—is baloney. We observed the discussions about the setting of interest rates during the Ken and Eddie show, and we have had a lengthy discussion. Yes, the last Government managed to hit the target once, but there has been a cost to the overall structure of our economy, and, indeed, the whole concept of the Ken and Eddie show has been brought into disrepute.
I am not sure why amendments Nos. 36, 37 and 39 were tabled, other than to give my hon. Friend the Member for Great Grimsby another opportunity to expound his theory about credit controls. Other amendments relate to the detail that goes into the minutes in relation to economic analysis. In amendment No. 38, my hon. Friend asks for fuller economic analysis to be included. Again, I ask him to look at the minutes that have been published. The minutes already include comprehensive discussion of economic developments, and a summary of the analysis presented by Bank staff. The quarterly inflation report—which is much respected by economic commentators and others—also contains the Bank's economic analysis. I do not think that amendment No. 38 would add to the information that is already provided.
Amendments Nos. 16 and 40 bring us back to issues that were discussed fully in Committee, when I understood that the Opposition had accepted the force of the Government's arguments. Let me repeat what I said at the time. We do not want the legislation to be overly prescriptive, for a very sound reason: we want members of the MPC to be free to be as frank as possible in their discussions at the meeting.
One of the reasons why we must resist the amendments is our experience in the United States, where the Federal Open Markets Committee publishes a transcript after about five years. Members of that committee have increasingly been in the habit of reading out prepared statements. We do not want that kind of discussion in the MPC; we want the fullest and frankest possible exposition of views on the state of the economy and the impact on the inflation rate.
The voting record of individual Monetary Policy Committee members is available, and will therefore make it clear where each member stands. Although the thought might seem unusual in the House, Monetary Policy Committee members might change their mind during a


debate, and we must give them that opportunity. Should they decide in economic discussion to change their position, they should feel free to do so.
I reiterate, however, the point that I made earlier: we should like there to be fuller and perhaps more transparent minutes of Monetary Policy Committee meetings. I am sure that the committee will respond to those concerns.

Mr. Gibb: What will happen when we try to read the minutes of the Monetary Policy Committee? We will look at the voting record, read the text of the opinions expressed and try to correlate one with the other, but we may not get it right. Would it not be far clearer, easier and more open to publish names next to the views?

Mrs. Liddell: I reiterate the point that I made about the FOMC. Whenever such practice has become enshrined in procedure, it has led to a reduction in economic debate and the delivery of prepared statements, because people know that their views will be fully represented when the minutes are published. There is about five years' delay in publishing those minutes.
The right hon. Member for Wells (Mr. Heathcoat-Amory) made a point about the Treasury representative's role in the meetings. The minutes already include a full record of discussion at the meetings, including the views expressed by the Treasury representative. Regardless, that representative does not have a vote and, therefore, does not take part in the decision-making process. I therefore believe that amendment No. 22 is also unnecessary.
Therefore, because of the contradictory nature of some of the amendments, and because the amendments are unnecessary and could conflict with the Monetary Policy Committee's purpose and the nature of its debates, I ask the House to resist the amendments.

Mr. Fallon: It is up to the hon. Member for Great Grimsby (Mr. Mitchell) to defend his own amendments and to decide what to do with them. However, I should like to respond to the debate and to the Minister's reply on amendment Nos. 16 and 22.
The Economic Secretary really did deploy a poor argument against amendment No. 16. She tried to criticise the arrangements that she inherited, although those arrangements delivered very low inflation—inflation lower than we have now—and were working well. Bizarrely, she then went on to criticise her own arrangements. She admitted to the House that the current Monetary Policy Committee minutes were not full enough. She accepted that criticism, and even almost invited the Monetary Policy Committee to improve its way of recording its decisions.
The Economic Secretary introduced a total red herring by making an analogy with the Federal Open Markets Committee. We do not want to be overly prescriptive. However, the amendment does not suggest that transcripts should be published, as happens with the FOMC; it simply suggests that, when the main views are noted, the name of the member who expressed those views should be included with them, as happens with any minute of, for example, a Cabinet Committee.
It is important to realise, as the Economic Secretary did not, that the new arrangements introduced by the Government are regressive. Under the previous arrangements, we knew the Chancellor's views and we

knew the Governor's views. It is fair enough to say that the views of the more junior officials attending the Ken and Eddie show were not recorded, but at least we knew where the Government stood, and we knew where the Bank stood.
Now that the Chancellor has withdrawn from the exercise, it is even more important that we know the position of the Governor and the deputy Governor of the Bank and of the external members of the Monetary Policy Committee. It is precisely because the Chancellor himself has withdrawn from the exercise that it is important for us to know the Treasury's view and the Treasury representative's comments. Therefore, I again commend amendment No. 16 to the House.
The Economic Secretary rather tried to brush aside amendment No. 22. Exactly what the Treasury representative will do on the Monetary Policy Committee is unclear in schedule 3 to the Bill. The matter was unclear until the point was raised in Standing Committee by my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb), who pressed the Government on it. It then emerged that the Treasury representative was not some observer or a mere assessor but would be playing something of a supervisory role.
I shall quote the words of the Paymaster General—where is he, by the way? He dealt with the subject and the procedure in Standing Committee, and it is about time that he attended the proceedings on them. It is a shame that he has not done the House the courtesy of attending the conclusion of our proceedings on the Bill. Nevertheless, when pressed in Committee, he revealed the Treasury representative's role. He said that the Treasury representative would ensure that
the actions of the Monetary Policy Committee"—
would not—
be violently at odds with Treasury fiscal policy."—[Official Report, Standing Committee D, 27 November 1997; c. 187.]
We discover, therefore, that the Treasury representative is no mere notetaker; he has the freedom to intervene in the debate.
The Treasury representative could be a very senior Treasury official. As Ministers are Treasury officials, a Treasury Minister might attend Monetary Policy Committee meetings. The Economic Secretary, the Paymaster General—if he finds time—or the Chancellor might attend the meetings. If relations continue to deteriorate, perhaps the First Lord of the Treasury might want to go along to the meetings to get a grip of what is going on.
It is therefore all the more important that we ensure that, if the Treasury representative does intervene, his or her views should be recorded. If all the other amendments to clause 15 fall, I hope that the Government will think again on amendment No. 22.

Mr. Mitchell: I did not expect the Economic Secretary to rush to her feet to accept my amendments. She has a fairly unique characteristic for a Treasury Minister: I do not feel bad when she rejects my amendments or arguments with her steely charm. She has exercised that characteristic in this debate. However, I reiterate my plea for openness. I should like more openness to be built into the Bill, as it would have been by my amendments.
Monetary policy should be made the subject of a national debate in which all people and interests can participate. We do not want interests—whether


manufacturing, finance or farming interests—to submit to the wisdom of bankers and monetary economists as if it were some type of divine wisdom. Such wisdom may be the rationalisation of a prejudice, a vested interest or a set of attitudes, and policy must be publicly argued and justified. Requirements for openness would have accomplished that, and I wish that they could have been built into the Bill.
I wish also that we could include amendments to find some alternative to rationing money by high interest rates and some way in which to manage credit. I wish not to prescribe or require such measures but to include in the Bill the ability to develop desperately needed methods and systems for managing credit.
The United Kingdom now has a terribly competitive market and too many institutions pouring out credit, inciting people to spend and to run themselves into debt. Credit is pouring out so much that we sometimes have a laxative-type economy. In managing our economy, we are unusually dependent on interest rates. Booms and busts—wild fluctuations—are therefore built into our economy and are almost inevitable.
The first result of the attempt to provide greater stability, by giving independent power to the Bank of England, has been to increase instability. In real terms, interest rates are now at almost record levels and are certainly higher than in the 1960s and 1970s.
That will have a dampening effect on the economy. Indeed, it is already happening. Comparative boom, which we had, will become bust. We must find a way of regulating things better to stop that. I was distressed to hear the Economic Secretary say that there was no way of controlling credit. If that is so, how can we control interest rates?
If we are as subject to international markets and international fluctuations as that, there is no way of producing stability in the economy. Instability is inevitable, and all the international trends will wash straight in. That is a counsel of despair, against which I must warn my hon. Friend.
We must try to find a way of managing credit. I would rather that opportunity were in the statute, but it will not be. I see little point in pushing amendments to a Division at this time of night, but I am sure that the Government are committed to openness and will expand and develop the idea as time goes on, even if that is not written into legislation as tightly as I should like.
I am certain that the Government will be driven by the fluctuations in the economy to find a better way of managing and controlling credit than the simple use of interest rates—the one-club golfing technique—has allowed them. Content in the knowledge that those things will happen, even if more slowly than I want, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 17

POWER TO OBTAIN INFORMATION

Amendment made: No. 43, in page 7, line 21, after 'institution' insert
', or a former authorised institution,'.—[Mrs. Liddell.]

Clause 21

TRANSFER

Mr. Fallon: I beg to move amendment No. 15, in page 9, line 36, at end insert—
'(2) In exercising the functions transferred under subsection (1) the costs of the Authority shall not exceed the costs incurred by the bodies previously responsible for exercising these functions, as adjusted for inflation.'.

Mr. Deputy Speaker: With this, it will be convenient to discuss the following amendments: No. 4, in clause 26, page 11, line 13, at end insert—
'(2C) Before exercising the powers contained in subsection (2A), the Authority shall consult those persons likely to be affected by the imposition of fees, and shall publish any representations it receives on that subject".'.

No. 23, in page 11, line 13, at end insert—
'(2D) The power to charge fees under this section shall be exercised so as to ensure that the costs of regulation under this Act are proportionate to the benefits.'.

No. 5, in page 11, line 27, at end insert—
'(3C) Before exercising the powers contained in subsection (3A), the Authority shall consult those persons likely to be affected by the imposition of fees, and shall publish any representations it receives on that subject".'.

No. 24, in page 11, line 27, at end insert—
'(3D) The power to charge fees under this section shall be exercised so as to ensure that the costs of regulation under this Act are proportionate to the benefits.'.

No. 6, in clause 40, page 16, line 5, at end insert—
'(2A) Regulations under paragraph 1 of Schedule 6 shall not be made unless a draft thereof has been laid before and approved by the House of Commons.'.

No. 8, in schedule 6, page 38, line 37, at end insert—
'(3A) A condition of the imposition of fees under this paragraph is that in any year following 1998 they should not, taken together with the implied value of the cash ratio deposits for the time being required to be maintained under section 6, exceed the total amount of such fees payable in 1998, adjusted for retail price inflation, unless both Houses of Parliament, by resolution, have given their approval for that amount to be exceeded.'.

No. 35, in page 38, line 37, at end insert—
'(3A) The power to charge fees under this schedule shall be exercised so as to ensure that the costs of regulation under this Act are proportionate to the benefits.'.

No. 9, in page 38, line 41, at end insert—
'(aa) provide for the reduction of fees in cases where the expenses of the Authority incurred in carrying out the transferred functions are minimised by the record of the authorised institution.'.

No. 10, in page 39, line 17, leave out 'instrument in writing' and insert 'statutory instrument'.

Mr. Fallon: I acknowledge that this large group of amendments covers a subject that was raised at some length in Committee, but we make no apology for


returning to it. There is widespread concern about the costs of supervision involved in the transfer of responsibility.
It is to the Government's credit that they have recognised that concern right from the start. Ministers have used phrases such as "bearing down on costs", and suggested that costs should be no greater under the new arrangements than under the existing arrangements. We need to find a way of translating those good wishes into the statute to ensure that a duty is imposed that will bring about the desired results.
If Ministers are sincere in wanting to bear down on costs, as I believe they are, they cannot possibly have any objection to amendment No. 15, which is one of the range of amendments that we suggest. It would simply cap costs at their existing level, adjusted for inflation as the years unfold. I cannot see how Ministers could resist that amendment.
Amendments Nos. 23, 24 and 35 would ensure that the concept of proportionality, which was also proclaimed by Ministers in Committee, and by the Economic Secretary in her speech outside the House last week, can be placed in the statute.
I understand why the earlier amendment on proportionality suggested by my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) in Committee was felt to be incomplete, in that it was rather too narrowly drawn and covered only a certain sector. The new amendments on proportionality go much wider, and I therefore hope that they will be more acceptable to the Government.
I hope that there is no hang-up about the concept of proportionality. It is there in Ministers' speeches and is recognised in the consultation documents by the Financial Services Authority. I therefore hope to see a favourable reaction by the Economic Secretary.
Amendments Nos. 4 and 5 try to extend the consultation already provided for under schedule 6 to the fee-charging powers of section 43 of the Financial Services Act 1986 and section 171 of the Companies Act 1989. The reason is simple: if we do not amend the Bill in that way, we will have differing degrees of consultation under different statutes, and that is undesirable in principle. I would in any case want to see an improvement in the consultation, and the same should apply to all fees imposed under the provision.
Amendment No. 6 can be considered with amendment No. 10. It raises an important point which I believe was not considered in Committee, which may represent an inadvertent lapse in the drafting of the Bill. Unlike many of the other instruments that set the new fees structure, the instrument under schedule 6 is not subject to parliamentary scrutiny.
That is wrong. The supervision fees represent substantial sums, and it is wrong to give the Financial Services Authority virtual freedom to raise taxation. If the Bank's regime for cash ratio deposits will be subject to affirmative resolution under schedule 2, the authority's regime should also be subject to proper parliamentary scrutiny. I should be most surprised if that amendment were thought unacceptable.
Finally, amendment No. 9 introduces a new concept in that it provides for remission or reduction of fees for good compliance. In other words, it would ensure that

well-established institutions with good track records of compliance that had not troubled the authorities would have their fees progressively reduced—or at least the authority should have the power to reduce their fees. That is because the costs of supervising them will be lower. It is not only sensible in itself but builds into the new system a strong incentive for better compliance as the system beds down.
I fully accept that the amendment may not be as perfectly drafted as parliamentary counsel would wish, but I hope that the Economic Secretary will at least react positively to the idea, even if she does not like the amendment.
I notice that paragraph 18 of the Financial Services Authority's consultation document says:
The charge made should be proportionate to some measure of the size of the bank and the nature and extent of its business.
We should take the hint and build into the fee-charging mechanism some incentive for banks to ensure that the costs of supervising them are kept as low as possible.

Mr. St. Aubyn: I believe that I can tell the House what happened when the third chapter of the Bill was first announced. I have it on the reliable authority of a book called "Blair's Hundred Days"—the inside story of that period. According to that book the Governor of the Bank of England, who is referred to as "George"
has gone through an experience that all bankers dread—being robbed in broad daylight.
The purpose of the amendments is to ensure that the Government, having shown their capacity for grand larceny, do not proceed to go on robbing banks in London in broad daylight. They have only themselves to blame for the fact that we feel it necessary to table the amendments.
If the entire concept in part III of the Bill had been thrown open to the type of consultation that would have been appropriate—at the very least, some sort of consultation with the Governor of the Bank of England—perhaps by this stage we would have had more confidence in the protestations, promises and general charm offensive that we experienced from the Economic Secretary in Committee and from her colleagues.
I agree that we are disappointed not to have the Paymaster General by the hon. Lady's side. There was nothing more charming than watching them working in harness on the Bill. We raised some important questions about part III with the Paymaster General in Committee and hoped that by now he would be in a position to answer them, particularly those relating to the activities of banks in offshore tax havens and how they might impact on banks in London. Who knows, he may pop up unexpectedly—as he did in Committee—before the Report stage is over and provide us with some illumination.
The point about cost is that we are not sure that the Government and the Bill demonstrate an understanding of what has driven the extraordinary success of the financial market in London. Underpinning that success was the good judgment of the Bank of England in administering a light touch to the wholesale market that is based in this city. It is fair to say that there were some failures of the banking system—there are always failures. If one tries to devise a system in which no failures can take place, one removes the principle of moral jeopardy and, as a result, people are simply tempted to chase the highest rates of


interest from the most dubious, highest-risk-taking financial institutions, with the result that the entire system comes under threat.
The risk of failure always has to be there and, as we all know, there have been at least three major failures in the past 18 years. I suggest to the House that each of those teaches us a lesson about the three guiding principles for the supervision of banks under part III. Our amendments would enable the new head of super-S1B to focus on those guiding principles, while reassuring banks in London that he would do so in a way that would not impose unnecessary and unreasonable costs on their operations.
The first major failure in London in the 1980s was that of Johnson Matthey. That experience taught the Bank of England that the old way of doing things had to change. Indeed, the Government responded with the Banking Act 1987, as well as changes in the regulation of financial services in London. We needed to create a new legal framework for banks operating in this financial centre, which is what the previous Government did.
8.45 pm
The second major failure was that of Bank of Credit and Commerce International and on that subject I can do no more than quote carefully the words of the former Chancellor, now Lord Lawson, who said in his memoirs:
it is very rare indeed for there to be a major supervisory problem in which fraud is not involved".
He goes on to explain that, even where the problem in the system originates elsewhere, fraud is often the means by which it is concealed and therefore it grows to be a much bigger problem when it finally hits the news.
My colleagues and I are deeply concerned that, in the construction of part III and the later clauses to which the amendments relate, little is explained or put into effect in relation to how the new regime proposes to attack fraud. There is a great deal to be said for the new super-SIB, in its operations in the London market, being given the power to root out fraud wherever it suspects it may exist.
I would very much welcome the considered comments of the Economic Secretary and her assurance that, having studied the matter carefully, she is completely confident that sufficient powers would exist as a result of the enactment of the Bill to deal with any possibility of fraud in the banking system in London.
The Barings crisis is the third factor that comes across from the lessons of recent years. The collapse of Barings was partly the result of fraud—the result of a dealer in another centre opening up what he called his, "Six, six, double six account", which involved fraud. Above all, the Barings collapse came about through a lack of understanding, first, on the part of the directors of the bank, but also by those who supervised them. It was either a market risk that led Barings to pay out hundreds of millions of pounds from London to its operation in Singapore—a risk on a scale that it should have known was way beyond its legal powers or what the Banking Act enabled it to do—or the money sent to Singapore must have constituted a credit risk. Again, it was a risk on a scale that it was not empowered to take under the terms of its banking licence. The directors of Barings should have understood that, and so should the supervisors of Barings at the Bank of England.
That brings us to one of the most important points. Whatever supervision system is constructed under the Bill, it must employ people who understand how the system works. Having such people costs money, but it is important for the Government to ensure that, under the new regime, the money is spent on having the right people, but so efficiently that the burden on banks in London is not excessive.
Many of the burdens would result from demanding information. What matters is not the cost of the people at the centre of the new investment board, but the costs imposed on the banks in terms of the amount, the precision, the regularity and the detail of the information that they are required to submit. It is far more important that the key figures are given accurately and regularly to the Bank of England than that the minutiae of the operations of each bank in London are demanded of them. In Committee, the Economic Secretary was very helpful. She made some important statements about how the Government intend to bear down on the costs of banks in London.
Although he was too modest to press the point, in amendment No. 24, my hon. Friend the Member for Sevenoaks (Mr. Fallon) took care to quote the Economic Secretary's exact words. Through the amendment, we are simply asking her to put her money where her mouth is, because it says exactly what she said at column 298 of the Hansard of our Committee proceedings. I would be curious to know why she should have any reluctance to accept that amendment.
Unfortunately, proportionality alone is not enough. Smaller banks in London have a vital role to play. They may often be the motors of innovation and new products. This is where the idea of proportionality comes unstuck. Mr. Howard Davies, who is to be the head of the super-SIB, explained to a Back-Bench meeting at the House before Christmas that one way in which it is proposed that the burdens of regulation will be limited is that banks are to be allowed to take some risks with a modest proportion—about 5 per cent., I believe—of their capital.
The difficulty is that small but sound institutions in London would need to use more than 5 per cent. of their capital to launch a new product and make it succeed. They would have to go over all the expensive regulatory hurdles that the new framework threatens to impose, at a time when no one knows whether the new products, services or markets are worth that investment of time and money; if, indeed, such a small institution could afford it.
I hope that the Government will show that they accept that, while no system of regulation can be perfect, in a sound regulatory system the good will drive out the bad. London is an excellent financial centre for a bank to establish itself in, but it is by no means the cheapest or the easiest. Indeed, it is an extremely competitive marketplace.
For a bank to survive in London it must have a profitable operation and a first-rate reputation. If either factor fails, the bank's borrowing costs will go up, its ability to do business will shrink, and the pressure of its overheads will oblige it to withdraw gracefully from the scene.
It is the job of other banks to know which are the safe and the less safe banks. That is the market intelligence that drives the strength, security and reputation of the


London market as a whole. No regulatory system, however expensive, can do better than that market system and that market intelligence. The Government should have no hesitation in accepting some constraints—that is all that the amendments would impose—on the charges that may be imposed on banks, which by and large will rely on their own market intelligence to ensure that they do not lend to other banks in London at an unacceptable risk.

Mr. Tim Loughton: Does my hon. Friend agree that the risk to banks operating in London will be heightened by what is happening on the continent? It is generally recognised that London is one of the more costly places in which to operate, because of the regulatory costs placed on the many hundreds of foreign banks in the City. At a time when the financial system on the continent is being liberalised, it would be easier and, indeed, cheaper for many of those banks to up sticks and move to the continent, especially in the context of a single currency, if that ever comes about. By not being more liberal on charges on banks in London, the Government can only encourage that movement.

Mr. St. Aubyn: That is a concern which we must all share. It is immensely encouraging that so many international banks, especially German banks, are concentrating operations in London. They might have been expected, in the build-up to the creation of the euro and a Euro-central bank in Frankfurt, to want to move there. Far from it: they have been scaling down operations in Frankfurt and coming to London because, as the global world of financial services becomes ever more competitive, economies of scale must be achieved.
Provided we have control over the costs of supervision, the natural advantage that London has built up in this vital part of our economy will ensure that those banks remain here. It would not take a great deal to drive them out to another centre. Because of the lack of consultation before part III was unveiled to the world last May, banks in London are concerned that there may be more surprises in store once the Bill is enacted and some of the other instincts that we have seen betrayed under the skin of new Labour come to the surface.
Either the amendments should be accepted or we should get some cast-iron assurances, perhaps from the Chancellor himself—I am delighted to see him here tonight—about the costs that will be inflicted on banks in London.
There is another risk, which I thought that my hon. Friend the Member for East Worthing and Shoreham (Mr. Loughton) might be about to allude to: the risk in transition. It is well known that, when the supervision of savings and loan institutions in the United States moved merely hundreds of miles, I believe, the disruption caused to staff and to the information-gathering process was identified by many who later studied the problem as a key cause of the institutions' immensely expensive collapse. Unless we have strict control over the administration costs of the new supervisory body, there is a real additional risk that the transition costs will be extremely high for banks in London.
My hon. Friend the Member for East Worthing and Shoreham mentioned banks on the continent and I have mentioned those in the United States. It is striking, and a

point worth making, that, although there were regulatory or banking failures in the London market under the old system from which we are moving away, they cost the British taxpayer scarcely a penny. In contrast, the collapse of Credit Lyonnais in France cost taxpayers there the equivalent of billions of pounds. Indeed, the scale of collapse of savings and loans institutions in the United States was measured in hundreds of billions of dollars.
It is an extraordinary achievement in a fast-changing world that, whatever deficiencies or mistakes may have been made in the Bank of England's supervision under the old regime, the cost to the British taxpayer was virtually nothing. It is incumbent on the Economic Secretary to the Treasury to assure us that she does not envisage any circumstances under which the taxpayer might be forced to make up for mistakes in any market upset under the new regime, in which she and her colleagues are taking a much more pivotal role.
When we discussed such regulatory matters in Committee, the Economic Secretary suddenly launched into a discussion about pensions. We are dealing primarily with wholesale markets. I look forward to debating with her the Conservative party's record in government on pensions at an appropriate time, but she should resist the temptation to do so on this occasion. We have a proud record of building up pensions provision in this country. I hope that she will—

Mr. Deputy Speaker (Mr. Michael Lord): Order. The hon. Gentleman is asking the Economic Secretary not to do what he is starting to do. The amendments are quite tightly drawn, and I would be grateful if he would stick to them.

Mr. St. Aubyn: I am grateful to you, Mr. Deputy Speaker, for that point.
We believe that the Government are trying to win credibility through introducing the Bill and through what they have said during the passage of it, but unless they accept the amendments, they will not establish sufficient credibility to reassure the banks in London.

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Mrs. Liddell: I commend the hon. Member for Guildford (Mr. St. Aubyn) on his after-dinner speech. I hope that he gets the job.
On a couple of occasions during the debate, I found myself checking the subject matter of the amendments. We are talking about the cost of regulation, which the Government take extremely seriously. I am delighted to note that Conservative Members have been reading the collected speeches that I have been delivering over the past few weeks. I hope that they find a cure for their insomnia soon.
As we said repeatedly in Committee, it is important to recognise that the Bill is about the transfer of the existing structure of banking supervision from the Bank of England to the new Financial Services Authority. I stress again that the Bill is about the transfer of the existing structure of banking supervision. The Government's proposals for financial services regulation comprise a two-part process. We are taking the opportunity to transfer banking supervision at the moment because we have a Bank of England Bill before us. It is about 40 years since the last such Bill was before the House. We are currently


consulting and drafting a financial services reform Bill, which will be introduced in the next Queen's Speech. Several points raised in the debate relate to that next stage of reform of financial services regulation.
I am grateful to Opposition Members for recognising the strength of the Government's view on the cost of financial services regulation. We have made numerous statements both in and outwith the House on the need to contain the costs of supervision.
Conservative Members have on a couple of occasions alluded to the costs of financial services regulation in this country. We have had extensive discussions with the banking community and the wider financial services industry in this country and internationally. They pay tribute to the benign nature and cost-effectiveness of this country's banking supervision. That is what we want to continue. We want to continue a regime of financial services regulation for the banks which allows them to thrive in the City of London—and, indeed, in the city represented by the Chief Secretary to the Treasury, my right hon. Friend the Member for Edinburgh, Central (Mr. Darling).
I regret that I do not find it possible to accept the amendments tabled by the hon. Member for Sevenoaks (Mr. Fallon) and his right hon. Friends. To some extent, they go against the intention fully to consult the financial services community on the future structure of the cost of financial services regulation. At present, we are operating within the structure that was laid down by the Conservative Government in the Financial Services Act 1986. We take on board the stated intentions of the Financial Services Authority on costs.
As for amendments Nos. 8 and 15, as the hon. Member for Sevenoaks pointed out, my right hon. Friend the Chief Secretary to the Treasury was specific in Hansard, column 77, of the Standing Committee proceedings about the lack of wisdom of putting in the Bill a ceiling on costs or fees that would be unnecessary and inflexible. We have already said explicitly that we expect the Bank and the FSA to bear down on costs. I am happy to repeat the Government's intention that the overall burden on the relevant institutions in aggregate should be no greater than it is today. We would prefer it to be lower.

Mr. St. Aubyn: Can the hon. Lady give a further assurance that the proportion of the burden borne by smaller banks will not grow—that the proportions borne by the smaller and larger will remain roughly the same?

Mrs. Liddell: We have made a statement about proportionality. Later this evening, we shall discuss cash ratio deposits, which are another element of the costs on banks and other financial institutions, including the building societies. A consultation process is taking place. We believe that the financial services community is best placed to advise the FSA on the costs that should be levelled and the relationship between costs and effectiveness. If costs are disproportionate to the effectiveness and the nature of regulation, the overall impact of regulation is reduced.
As for amendment No. 9, the FSA has already made it clear that, this year, it will consult on its longer-term proposals for a comprehensive charging regime covering

all the types of firms that will be regulated by the FSA. I imagine that any right-minded person would accept that that is a logical way to proceed. I reiterate what my right hon. Friend the Chancellor said when he launched the FSA in October last year. There will be a specific statutory requirement on the FSA to be efficient and effective.
We have also concluded that we should give specific responsibility to the FSA to deal with financial crime. The Solicitor-General and I have already made extensive speeches on the matter and there can be no doubt about the Government's view on it.

Mr. Fallon: I fully take the point that the FSA is to consult on the final regime, but, as the Minister referred earlier to the Government's intentions and wishes, will she say that the Government support the principle of amendment No. 9?

Mrs. Liddell: In general terms, we have already made that clear in the debates in Committee. I would not wish anyone to assume from that that we have any attraction to the concept of caps. Caps can sometimes be used as targets. That would be a most unacceptable way to proceed. If we were to set a cap, people might believe that that was the figure aimed for. That is one of the reasons why we have a reservation about the use of caps in relation to fee setting.
Amendment No. 9 would also require the FSA to reduce its banking supervision fees for banks with good track records. The amendment does not specify whether it is the cost of regulation or the inherent riskiness of the business that should be taken into account when setting the level of fees. The FSA has again undertaken to consult this year on the future charging regime. That is a more acceptable way forward, as that consultation will take into account the costs of regulation and the riskiness of the business. I assure the House that there will soon be a whole new framework for financial services regulation, which will include a statutory responsibility on the FSA to take costs into account.
Amendments Nos. 4 and 5 relate to a large extent to the wholesale market. In that respect, we seek to rely on section 43 of the Financial Services Act 1986, which was passed by the Conservative Government and which provides for a special wholesale markets regime, with lighter-touch regulation than for retail financial services. I understand that that is sometimes referred to as the "grey paper". Section 171 of that Act makes similar provision for settlement arrangements for the wholesale money markets and, at present, only one body is regulated under that section.
The amendments would also impose a requirement to publish representations. I do not see that it would be helpful to introduce another bureaucratic requirement, because that in itself would be costly; but I can assure the House that the FSA has made it clear that it is of a mind to make available any representations it receives, provided those making the representations have not said that they wish them to be treated in confidence. I hope that, on the basis of those assurances, the House will reject the amendments.
I have to make it clear that the FSA has undertaken a major process of consultation, which is going on at the present time and which will be extended throughout this


year. When we reach the next stage of reform of the financial services sector, the Government will publish the Bill in draft. It will be published in spring or summer this year so as to give the financial services community an opportunity to comment on the structure of the legislation. [Interruption.] I see that the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) is worried by the words "spring or summer". I am a Scot, and summer comes rather later to my part of the world, so I am always a bit variable about when spring and summer actually begin.
I accept the points made by the Opposition and recognise that they have paid tribute to the Government's determination in respect of costs. However, I must emphasise that we are currently transferring the existing structure of banking supervision from the Bank of England to the FSA and that we are in the process of a much bigger reform. We do not want to constrain the consultation that is to take place as we structure the FSA for the future, so I ask the House to reject the amendments.

Mr. Fallon: I have to say that I am somewhat disappointed, but first I want to correct the Economic Secretary on one small point. Time has passed more quickly than she thought: it is not 40 years since the last Bank of England Act was passed, but 51 years.
I am particularly disappointed that, from the point of view of the Government, the hon. Lady did not accept the principle underlying amendment No. 9. I do not believe that she addressed amendment No. 6 at all, although that omission might have been inadvertent. She may not be allowed to speak again, but I shall give way if she cares to intervene in my speech. I asked why schedule 6 alone was not subject to affirmative resolution. That would strengthen the statutory protection and give comfort to those who have to pay the fees, so there is a case for parliamentary scrutiny.

Mrs. Liddell: I inadvertently missed out the references to schedule 6. I was conscious that colleagues on both sides of the House were beginning to look at the clock.
Under schedule 6, the relevant procedures are set out and state what the regulations can cover, as well as the consultation requirements. To repeat what I said earlier, we are transferring existing functions. The hon. Gentleman should reflect on the fact that this approach was adopted by his Government in the Financial Services Act 1986, and that is the model which we have followed. The purpose of providing for fee regulation to be made by the FSA is to mirror schedule 9 to the 1986 Act, which governs the collection and use of fees by the FSA under that Act. We do not see any sense in applying a different system in the Bill.

Mr. Fallon: I am grateful to the hon. Lady for that intervention. The only difficulty is that it leaves us with two different regimes. There is an affirmative resolution procedure for the fees recovered through the cash deposit system, whereas the order to be laid according to the FSA procedure under schedule 6 will be not be subject to any parliamentary scrutiny.
Be that as it may, we have tried to tempt the hon. Lady with a range of different methods of cost constraints. We have suggested capping, indexation, proportionality and

the reduction of fees for good compliance. The amendment would not have required reduction, but merely provided for it. It would have been up to the FSA to devise its own scheme.
Our amendments even offered the hon. Lady the possibility of using her own words as a form of cost control, because, in the end, that is all that we and those who have to pay the fees have to fall back on. We have heard the speeches of the Chief Secretary and the Economic Secretary. We have heard about her wishes, and we even heard about something else that she called "an explicit statement". We have heard her say that it is the Government's intention to bear down on fees. In the end, however, they are not the Government's fees to set; they will be set by the authority. That is why we think that it is important to get it right and put it in statute.
The debate has quite convinced me that this is a matter that may well attract attention in other place. In the meantime, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2

CASH RATIO DEPOSITS

Amendment made: No. 44, in page 19, line 11, leave out 'within the meaning of' and insert 'authorised under'.—[Mr. Betts.]

Mr. Fallon: I beg to move amendment No. 21, in page 21, line 5, leave out
'to be representative of persons'.

Mr. Deputy Speaker: With this, it will be convenient to discuss amendment No. 7, in page 21, line 7, at end insert
',and shall place in the Library of each House of Parliament a summary of all representations received.'.

Mr. Fallon: I welcome the Treasury's early publication of its consultative document. It is not the weightiest of documents, but at least it was published in good time, and it appears to be suitably green. It is important that it is green. When the Minister replies, I hope that she will confirm that the Government are still reasonably open-minded on the definition of eligible liabilities and about the thresholds and the banding levels that will apply. Huge sums of money are involved, and it is important to get it right, because, although the first order can be revised once it is laid, according to the consultation procedure laid out, I suspect that that order will largely set the pace.
The City needs some reassurance that the consultation process is absolutely genuine, because of the sums involved. It needs to know that the views of institutions will be heard. That is the objective of amendments Nos. 21 and 7.
Amendment No. 21 would ensure that all eligible institutions are consulted, not simply their representative bodies. I do not believe that that represents a huge extra burden of paperwork—indeed, the Bill limits the consultation to those institutions that are materially affected. I look forward to the Economic Secretary finally welcoming one of our amendments.
Amendment No. 7 ensures that the representations received are not simply ignored. We are simply asking that, as happens in the case of many other consultative processes, a summary of those representations be placed in the Library of the House, so that all involved can see the balance of the views expressed, and the extent to which the order that is laid takes account of those views.
While we are on the subject of cash ratio deposits, perhaps we should address the little matter of the explanatory memorandum, which I gather is to be altered when the Bill is reprinted. Perhaps the Minister will explain why we must alter the explanatory memorandum; why we are bound by the statistical office of the Commission to do so, or indeed whether we are bound by Eurostat to do so; why that issue was not clarified before the Bill was drafted; and whether the change means that the Government can get away with a lower central Government expenditure total and—who knows?—easier qualification under the Maastricht criteria. Some clarification in support of the Chief Secretary's letter would be welcome.

Mr. Gibb: I merely ask whether the Economic Secretary has addressed the economic concerns expressed by the Building Societies Association. Specifically, I wonder whether she can give the House, the City and the country an idea of the percentage that the Government are likely to choose. The Building Societies Association believes—as I do—that the percentage, which was 0.35 per cent. of eligible liability, should be considerably lower in view of the reduction in activities. Can the Government confirm that it will be lower, and will they give an idea of the percentage that is likely to be applied in future?

Mrs. Liddell: I shall address that point with the point that the hon. Member for Sevenoaks (Mr. Fallon) made about the consultation process. There has been genuine consultation—I am glad that the hon. Member for Sevenoaks acknowledges that—and we shall be guided by the advice that we receive from those directly affected by cash ratio deposits, especially bearing in mind the fact that many new institutions—the building societies—now become eligible for cash ratio deposits as they move away from a voluntary structure.
Before I discuss the amendments, I take on board the point about the explanatory memorandum. I admit that, when I saw the letter that my right hon. Friend the Chief Secretary to the Treasury wrote to the right hon. Member for Wells (Mr. Heathcoat-Amory)—and to the hon. Member for Kingston and Surbiton (Mr. Davey) and my hon. Friend the Member for North Durham (Mr. Radice)—which said that we were complying with Eurostat, I thought that the Pavlovian response of Conservative Members to matters European would cause a reaction; I am delighted to see that I was not disappointed.
The Office for National Statistics has taken Eurostat's advice because Eurostat is developing a system that will give central bank coherence throughout Europe, so that there is a clear read across Europe. It is important for Governments to take seriously the advice of professional statisticians on these matters, and we have done so, in

terms of the advice that the ONS has received from Eurostat and advice that we, as a Government, have taken from the ONS.
Regrettably, despite the honeyed words of the hon. Member for Sevenoaks, all these references to charm are getting him nowhere, and I shall resist amendments Nos. 21 and 7. We believe that the suggested procedure in amendment No. 21 would be much too cumbersome. We are happy to take representations from all interested parties, but if we must then consult each individual party, the Treasury would be obliged to consult separately more than 500 banks and building societies.
I believe that Governments, past and present, have, and have had, a great deal of respect for the British Bankers Association and the Building Societies Association. We have forwarded the documents to both organisations, and they have in turn forwarded copies to all their members. We expect to receive responses from the representative organisations and from individual institutions that feel strongly about specific aspects. That process is much more efficient than the one suggested in amendment No. 21.
I am sure that the hon. Member for Sevenoaks is as concerned about Government efficiency and value for money as we are. We believe that it is much more efficient to limit the statutory requirement to consult to those who are representative of persons likely to be materially affected. Therefore, the Treasury is responsible for finding the right representative bodies. If the hon. Gentleman is suggesting that the British Bankers Association and the Building Societies Association are not properly representative, we shall all be interested to hear why he thinks so.
Amendment No. 7 asks that a summary of all representations be placed in the Library of the House. We have done some checking in this area, and we are not aware of any other references in legislation to the placing of documents in the Library. Therefore, we do not believe that it would be appropriate to put that kind of obligation into the legislation.
However, I assure the House that the Government's response to the cash ratio deposits consultation will include a summary of representations received, subject to preserving the confidentiality of those who seek it. We are anxious to be as open as possible while respecting the confidentiality of those involved. We must also respect the need for value for money and efficiency on the part of Government. Therefore, I ask the House to resist the amendments.

Mr. Fallon: The Economic Secretary said that the consultation is genuine; I assure her that the amendments are genuine also. We believe that they will improve the consultation process. Of course it is easier for the Treasury to send out only two letters rather than 500. That is a matter of judgment—and we know who will win the argument. We still believe that, in this instance where large sums of money are involved, it would be better to make the consultation as wide, rather than as narrow, as possible.
The Economic Secretary took a rather hard tone in referring to amendment No. 7. However, she has almost satisfied me with her last assurance. If she will publish a summary of the representations received in the Government's response document, she is 90 per cent. there. At least those who have made representations will


be aware of the balance of views. In light of that assurance—for which I thank her—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 7

RESTRICTION ON DISCLOSURE OF INFORMATION

Mr. Heathcoat-Amory: I beg to move amendment No. 11, in page 42, leave out line 12.

Mr. Deputy Speaker: With this, it will be convenient to discuss the following amendments: No. 12, in page 42, line 12, after 'any', insert 'legally binding'.
No. 13, in page 42, line 12, after 'obligation', insert
'specifically requiring the disclosure of information relevant to the purposes of this Act.'.

Mr. Heathcoat-Amory: This small group of amendments touches on an issue that the Treasury Committee considered at some length, but unsatisfactorily. To be charitable to the Government, I do not believe that they had spotted the issue before we raised it. The debate was answered by the Paymaster General, whose mind was on other things by the time we reached this part of the Bill. It is an important matter, which was not resolved in Committee.
The matter concerns the disclosure of confidential information to the European Union in circumstances of which the House may not approve. It is about the powers of the House, and about the apparently privileged position of the European Union regarding information gathered by the Bank of England in confidence. The Bill makes provision for the Bank to obtain information from institutions, banks and so on, and criminal penalties attach to those who decline to provide that information. That is understandable: the Bank needs a lot of information in order to carry out its tasks.
That means that the Bank of England will possess much important information about the City of London, all of which could be useful to competitors, including other financial centres. There are quite proper restrictions on the uses to which that information can be put and to whom it may be disclosed. There is a table in schedule 7 that sets out the authorities to which information can be disclosed. It also lists the functions in pursuance of which those institutions need the information. All that is right and has our full support.
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However, there is an overriding permitted disclosure that does not have to be listed in this way or approved by the House. That appears at the end of the schedule, where it is specified that all information may be disclosed
in pursuance of any Community obligation.
The House knows that that goes extremely wide. We have a great many obligations under the European treaties. To give just one example, article 102a of the Maastricht treaty states that member states must
conduct their economic policies with a view to contributing to the achievement of the objectives of the Community".
Those objectives are defined in article 2 as including
an economic and monetary union".

There are a number of other very general obligations.
It is easy to see that some organ of the European Union—whether it is the Commission, the Council of Ministers, the European Parliament, or the Committee of the Regions—might want information about monetary policy or about the City of London. A European institution might, for example, believe that the City was gaining certain advantages outside the euro zone because of what it might term a competitive and unnecessary devaluation.
Therefore, in pursuit of our obligation to assist economic and monetary union, European institutions could foreseeably demand information about British monetary policy and about banks and institutions operating in London. That follows logically.
Our amendments would restrict disclosure, by removing the privileged position of the European Union and requiring its institutions to be listed in the table alongside UK authorities and institutions. We do not disagree with the proposition that information should be disclosed to the EU, if it is proper and if the House agrees. The House will shortly approve the institutions listed in the table. Why can it not also approve the European Union as an authority, and list the functions under which disclosure is required? That would put the EU on a par with any domestic institution. What could be fairer than that?
If that does not appeal to the Government, there is an alternative that I commend to the House. That would make it clear that the relevant obligations are legally binding, and it would narrow the obligations to ensure that they specifically require the disclosure of information, pursuant to the purposes of the Bill.
Those are modest requests. They would not inhibit or damage our relations with the EU, if that is what the Government fear. I hope that the Minister will respond positively, as an important matter is involved—the role of Parliament in regulating our relations with other institutions, especially those abroad.

Sir Teddy Taylor: After my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory) has made the point so ably, I have two questions to ask the Government. The first is why it is necessary to put in the words in line 11. We have been told time and again that European Community law is superior to our law. Surely, if the Bank of England revealed some information and someone challenged it, and if the disclosure was a Community obligation, there would be no problem, so why are the words included?
We are constantly passing laws without thinking through their consequences, and without realising how silly and nebulous they are. It is a huge mistake to think that it is possible to specify Community obligations. I say that, having attended the meeting of the Sub-Committee of the Treasury Committee this morning, and a delightful meeting yesterday at the Bank of England, which was also attended by all the top bankers who operate in this country.
At that meeting, the Bank of England handed out a delightful paper with a red cover stating clearly and precisely that, although the House had been told that Britain was exempt from article 109L of the Maastricht treaty—which, although it sounds small, is terribly important because it refers to fixed exchange rates and


member states' obligations to pursue the single currency; all kinds of complicated things—in practice it would have to apply. It said that, because it was part of the monetary regulations relating to the euro, it would be enforceable in English courts. The Minister may wonder why the Bank of England referred to English courts, not British courts, but it did refer to English courts.
Basically, the Bank of England was saying that, although the House of Commons thought, and thought rightly, when the previous Prime Minister, a dedicated and sincere person, came back and said that we need not worry about article 109L because we were exempt from it, nevertheless it will apply. This is a constantly moving situation, and there is no way in which we can specify our Community obligations.
The next thing that I hope the Minister will bear in mind is that, as we approach the two years of convergence with the other currencies before we join, a complex and difficult situation will arise with fixed exchange rates. The one thing that seems abundantly clear from our own experience in the UK is that a certain number of those currencies will be under enormous pressure. There is no doubt that the United States will have an interest in such matters.
Why on earth should the Bank of England be obliged to surrender information when it may be against our national interest, simply because it may believe that it is relevant to a Community institution?
Who decides on these matters? Does the Bank of England decide, or does the European Community simply say what must go? I have always been suspicious of any legislation relating to the EU because, unfortunately, we have been misled time and again. I can think of many examples when we have been given the clearest of promises, only to find, sadly, that those promises are thrown out of the window.
The day before yesterday, a large number of farmers came to the House, and we have had some fishermen recently. Those poor old fishermen were given clear and precise assurances, but, unfortunately, the European Court threw them out, and the obligation simply disappeared.
The Minister must say why on earth we need this line at all when there is no need for it, and when the obligation is superior to our law. Secondly, is it fair and reasonable to include words which impose an obligation, when other countries will not be aware that information relating to them will be passed over without their knowledge?
The line should be removed, as suggested in the amendment, but if not, I hope that the Minister will at least accept the wise and intelligent suggestions of my right hon. Friend the Member for Wells, who I hope will some day have responsibility for looking after such matters and sorting out the horrible mess that we have ended up in with European legislation.

Mrs. Liddell: I hear the baying of Pavlov's dogs. We have just seen a vignette of the problems currently being experienced in the Conservative party. Schedule 7 is not about disclosure to the EU but about avoiding the possibility of the Bank and its officials being faced with a conflict between EU and UK laws.
This is not a measure taken by the Government to advance our position in Europe. The specific provisions in the Bill that the right hon. Member for Wells

(Mr. Heathcoat-Amory) seeks to remove exactly mirror section 85(1)(h) of the Banking Act 1987 and section 180(1)(t) of the Financial Services Act 1986. The previous Government included no fewer than 18 identical provisions in the legislation that they enacted. There was one per year on average while they were in office, including the Pensions Act 1995, the Railways Act 1993, the Water Industries Act 1991, the Friendly Societies Act 1992, the Companies Acts, the Gas Act 1986, and the Competition Act 1980. The exemption is in the Bill as a failsafe, to answer the point raised by the right hon. Member for Wells, and the hon. Member for Rochford and Southend, East (Sir T. Taylor). It was not included with any particular obligation in mind. The point is to avoid a conflict of law and a dilemma for officials who might otherwise be potentially open to prosecution for fulfilling a binding legal obligation under Community law. An identical amendment was tabled in Committee. What is more, as regards amendment No. 12, it is clear that the obligations concerned would have to be legally binding.
Amendment No. 13 would unduly narrow the exemption by ruling out disclosure in meeting an obligation expressed in terms of collaboration or co-operation. Indeed, the obligation, the amendment, would do exactly the opposite of what Opposition Members are seeking to achieve. The term "Community obligation" has the meaning given to it in schedule 1 to the European Communities Act 1972, which refers to
any obligation created or arising by or under the Treaties, whether an enforceable Community obligation or not.
The term "enforceable" in this context refers directly to the applicable Acts of the Community.

Sir Teddy Taylor: I am sure that the Minister will accept that there is always the possibility that the previous Government may have made an error, too. I know that the previous Government achieved great things, but they made some mistakes. What is the point of putting in the line in question if Community law is superior to our law? How could a case arise? I just want to know why it has been included.

Mrs. Liddell: The hon. Gentleman is showing an obsession with this matter. We are seeking to give protection to officials of the Bank so that they are not put in an invidious position. Opposition Members seek to put them in an invidious position. The Government cannot, therefore, accept the amendments. I urge the House to resist them.

Mr. Heathcoat-Amory: That response rather typifies the Government's whole handling of the Bill. The Minister agreed that we are talking about legal obligations, which is not clear from the Bill as drafted, yet she is unwilling, for unspecified reasons, to accept the amendment, or, indeed, to table one of her own that will make the matter clear. The phrase "Community obligation" is incredibly vague and incredibly wide, and it was our intention to restrict it to what is more properly the intention of the House and, I think, the Minister. I am not surprised by her response, because she has done this before at other stages in the Bill's progress. We will not press the amendment to a Division because we want to get on to Third Reading so that we can review the Bill in its entirety. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 8

TRANSITIONAL PROVISIONS AND SAVINGS

Amendment made: No. 45, in page 43, line 5, leave out from 'satisfied' to 'shall' in line 6 and insert—

'(a) any requirement to consult before making an order under this Act, or
(b) any requirement of paragraph 2(1) of Schedule 6, that requiremene'.—[Mrs. Liddell.]

Bill reported, with amendments.

Order for Third Reading read.

Mr. Darling: I beg to move, That the Bill be now read the Third time.
This is an historic Bill. For many years there has been much talk and discussion about the merits of an independent central bank; indeed, there have been many debates in the House. On entering office we made it clear that we believed that the best way to obtain price stability and a commitment to low inflation was to give the Bank of England operational independence to meet the Government's inflation target of 2½ per cent. The Bill is a cornerstone of the Government's economic strategy. It is a major step forward. The passing of the Bill will put in place another plank in our economic policy.
We have already made it clear that we want to promote stability and long-term growth. We are prepared to face up to the long-term issues, which the previous Government ignored for far too long. Those include the need to end the damaging cycle of boom and bust, which has affected this country badly for many years, and to put in place a framework for long-term stability. Controlling inflation is an essential precondition for growth.
We are taking steps to tackle the structure of unemployment and to equip people for the future by improving educational standards and providing opportunities for people to acquire skills. The welfare-to-work reform and the new deal for the young and the long-term unemployed are major steps forward that no Government in recent history have attempted. Our tax and benefits system will be overhauled so that it encourages work and makes work pay.
We have encouraged long-term investment; we shall abolish advance corporation tax; we have announced cuts in corporation tax, with more to come; we have overhauled the private finance initiative; and we have provided leadership so that we can influence Europe in the interests of this country.
The reform of the Bank of England is a major part of that strategy. It shows our determination to achieve economic stability and low inflation, which is good for business, for savers, for pensioners and for anyone on low and fixed incomes. The new Bank of England will have one of the most open and accountable systems of any central bank in the world. It has a clear target. Its procedures are open; as we discussed this evening, there are many ways in which its policy and commitment are open to scrutiny, by this House, the country and the world at large. That marks a commitment to openness and transparency which this country has not seen before.
This country depends on its international trade and on markets having confidence in the Government's ability to deliver economic stability and low inflation. The

independence of the central bank, the code of fiscal stability and the pre-Budget report are all planks in the same strategy to ensure that there is openness. Openness brings confidence and certainty that the Government will not be moved from their determination to deliver low inflation.
We therefore have a clear policy for monetary stability and for fiscal stability and, unlike the Conservative party, we have a clear policy on Europe. Nine months after the announcement by my right hon. Friend the Chancellor of the Exchequer that we would give the Bank of England operational independence, we still do not know where the Conservatives stand on this question. It is less than 15 minutes before we shall vote and they have not told us whether they are for or against the measure.

Mr. Heathcoat-Amory: The right hon. Gentleman has not been here.

Mr. Darling: I have been here at nearly every stage of the consideration of this Bill and not once have Conservative spokesmen told us whether they are for or against the Bill. The Conservatives are all over the place on this Bill, just as they are divided on Europe. Anyone listening to the debate tonight will have been struck by the fact that every time Europe was mentioned, the Conservative party went into a flurry of confusion and hatred. Every time they looked at a clause that might have involved Europe, all the old divisions and confusion resurfaced.
We have a clear idea of the interests of this country, in both European and domestic policy. Reforming the central bank was an essential part of that. In nine short months we have achieved a major reform, which will deliver great benefits for this country. We took action almost immediately on entering office on 2 May last year, and we now have a central bank that is fit for the 21st century and an economic strategy that will rebuild this country. This Bill is a central part of that strategy. I commend it to the House.

Mr. Edward Davey: I do not wish to detain the House for long, partly because the Liberal Democrats' support for the principle of the Bill is widely known and has been long-standing. Uniquely among the major parties, we campaigned for the reform of the Bank of England and we welcome the Labour party's conversion to that policy now that it is in government.
The Chief Secretary to the Treasury explained the benefits of an independent central bank. It is important to have those benefits on record because we have heard so many arguments against an independent central bank. As the Bank of England builds its reputation as an institution that is ready to fight inflation, it is important that public and political support is strengthened and that people recognise the strong arguments for its independence.
I reiterate the comments of the Chief Secretary to the Treasury about the need for the Conservatives to put their view of this policy on record. They should acknowledge their mistakes in government and their failure to produce a strong, anti-inflation policy through an independent central bank. They have still not changed their policy, but it is important that they do so, because for the Bank to be effective in the long term, there must be cross-party consensus on its independence.
It may be presumptuous of me, as a young, new, junior Member, to give advice to the Conservative party, but I suggest that it will lack credibility if it does not change its position before the next election. Although I am not too concerned about the Conservative party's lack of credibility, it would do this country a great disservice if it did not change its policy, because that could create instability in the financial markets. We would have the intriguing prospect of a flight of capital from this country if a Tory victory at the next election were predicted and it had not changed its policy.
The Liberal Democrats did not give the Bill their total support in Committee because of its shortcomings, especially on accountability. We are disappointed that the Government have not accepted our amendments or any of the cross-party amendments. However, we shall give them our support in the Lobby tonight, because the Bill is a major step forward for British economic policy.
It is important that interest rates have been taken out of the political arena. Economic policy makers can now concentrate on the real issues that determine a country's prosperity, such as investment in education and in research and development, free, fair and sustainable open markets and an open trade policy. That is what determines the long-term economic future.
The Liberal Democrats will support the Government, and we will look with interest to see which Lobby Conservative Members go into if they decide to vote.

Mr. Heathcoat-Amory: Proceedings on the Bill have been characterised throughout by the Government's contempt for the House, and this debate has been no exception. This huge change in monetary policy, whereby interest rate decisions have been transferred to a committee of the Bank of England, was first announced not to the House but in a letter to the Governor of the Bank of England. That attitude towards the House has persisted.
The Government have rejected the cross-party position on confirmatory hearings. They have rejected a modest suggestion that not only the decisions of the Monetary Policy Committee but the reasons advanced by its members should be published in the minutes, which is in line with the White Paper on the public's right to know. Now the Chief Secretary asks us whether we are in favour of the Bill. It is rather terrifying that the man who is in charge of the nation's finances cannot remember what happened as recently as 11 November. We gave our reasons for voting against the Bill on Second Reading, and nothing has happened since then to change our minds. Indeed, our careful scrutiny of the Bill in Committee showed up a number of deficiencies that were not clear at the time.
The Bill still worries some Labour Members who were not represented on the Standing Committee and who do not like the idea of transferring decisions on economic policy from elected politicians to unelected bankers and officials. All I can say to them is that they have seen nothing yet. If the Government go ahead with their plan to transfer everything to the European central bank in Frankfurt, those hon. Members will know what it means

to transfer decisions on the British economy offshore entirely. That, however, is for another day and another debate.
In its current form, the Bill will not appeal to those of my hon. Friends who in principle support the concept of an independent central bank. The Bank provided for in the Bill will not be independent like, for instance, the Bundesbank or the Federal Reserve in the United States, and it does not qualify as an independent central bank under the treaty of Rome as amended at Maastricht. Further legislation will therefore be needed if and when we proceed to full economic and monetary union.
Rather than being independent and having genuine discretion in monetary policy, the Bank will work on a short-term contract from the Treasury. The only discretion that it will have, albeit an important discretion, will be in the setting of short-term interest rates; everything else will be decided by the Treasury. The Treasury will make all the appointments to the Monetary Policy Committee, and will ensure that they are all short-term appointments that will not last even for a full parliamentary term.
That brings us to the mysterious affair of the Treasury Committee. Conservative Members adopted in full the suggestions of that all-party Select Committee—

Mr. Darling: Will the right hon. Gentleman give way?

Mr. Heathcoat-Amory: I hope that the right hon. Gentleman will forgive me if I do not. I want to finish my speech shortly.
Conservative Members adopted the suggestions of the all-party Select Committee—chaired by a distinguished Labour Member—in regard to asking for confirmatory hearings. It was a modest request, as the Government had signalled in the Standing Committee that they were in favour of the principle. We wanted to ensure not that the House should have nomination rights, but simply that we could make certain that the Bill's requirements were implemented in regard to the competence and independence of candidates for membership of the MPC. That, as I said, had all-party support. Indeed, the Chairman of the Select Committee tabled an amendment to that effect, and one of his hon. Friends—also a member of the Select Committee—spoke in its support.
A Division was called, and all those Labour Members mysteriously disappeared. So much for democracy in the Labour party—but it should worry the House, as an institution, when, after the Opposition have picked up a modest, serious and well-argued proposition advanced in a Select Committee that has subsequently been tabled as an amendment and pressed to a Division, Labour Members are pulled off it by their Whips.
Other deficiencies came to light in the Standing Committee. I must say in passing that most of them were discovered by Conservative Members. The Liberal Democrats are fond of saying nowadays that they are the only people who put up proper opposition, but I must point out that the two Liberal Democrats on the Standing Committee turned up very seldom. I believe that the hon. Member for Twickenham (Dr. Cable) attended only four sittings. As usual, the real task of scrutinising the legislation and providing constructive opposition fell to Conservative Members.
Then there is the mysterious matter of the abstention, or disappearance, of the Paymaster General. We rather wish that he had been present this evening, because we


all have happy memories of his not only attending the Standing Committee sittings, but answering a good many of our debates. For instance, he replied to many of the debates about the method of appointment to the MPC. Yesterday, when we debated the Paymaster General's tax affairs, he did not turn up for that debate, but I really think that someone should have told him that he could come out of hiding this evening, because we were debating not his personal affairs but the Bill on whose Standing Committee he served.
We have had some inadequate replies to the points that we have made, but that does not completely surprise us. The central point is that our opposition to the Bill does not signal our opposition to low inflation. Whereas we met our inflation targets in the previous Parliament, the Government weakened their inflation target, and then missed it in every succeeding month. They have tried to shuffle off responsibility for those decisions on to the Bank of England. They will not succeed in that. We have no confidence in the Bill, and we will be voting against it.

Question put, That the Bill be now read the Third time:—

The House divided: Ayes 207, Noes 116.

Division No. 139]
[9.59 pm


AYES


Ainsworth, Robert (Cov'try NE)
Cox, Tom


Alexander, Douglas
Cranston, Ross


Anderson, Donald (Swansea E)
Crausby, David


Anderson, Janet (Rossendale)
Darling, Rt Hon Alistair


Ashdown, Rt Hon Paddy
Davey, Edward (Kingston)


Ashton, Joe
Davis, Terry (B'ham Hodge H)


Atkins, Charlotte
Dean, Mrs Janet


Ballard, Mrs Jackie
Denham, John


Barnes, Harry
Dismore, Andrew


Beard, Nigel
Dobbin, Jim


Beckett, Rt Hon Mrs Margaret
Doran, Frank


Begg, Miss Anne
Dowd, Jim


Bell, Martin (Tatton)
Drew, David


Bennett, Andrew F
Eagle, Angela (Wallasey)


Bermingham, Gerald
Eagle, Maria (L'pool Garston)


Berry, Roger
Edwards, Huw


Blears, Ms Hazel
Efford, Clive


Breed, Colin
Fatchett, Derek


Brown, Rt Hon Gordon (Dunfermline E)
Field, Rt Hon Frank



Fitzpatrick, Jim


Brown, Rt Hon Nick (Newcastle E)
Fitzsimons, Loma


Bruce, Malcolm (Gordon)
Flint, Caroline


Buck, Ms Karen
Follett, Barbara


Burnett, John
Foster, Michael Jabez (Hastings)


Butler, Mrs Christine
Foster, Michael J (Worcester)


Byers, Stephen
Gapes, Mike


Cable, Dr Vincent
Gardiner, Barry


Campbell, Mrs Anne (C'bridge)
George, Bruce (Walsall S)


Campbell, Ronnie (Blyth V)
Gerrard, Neil


Caplin, Ivor
Gibson, Dr Ian


Casale, Roger
Godman, Norman A


Chapman, Ben (Wirral S)
Godsiff, Roger


Chisholm, Malcolm
Grant, Bernie


Clapham, Michael
Griffiths, Win (Bridgend)


Clark, Rt Hon Dr David (S Shields)
Hain, Peter


Clarke, Charles (Norwich S)
Hall, Mike (Weaver Vale)


Clarke, Tony (Northampton S)
Hall, Patrick (Bedford)


Clwyd, Ann
Hanson, David


Coaker, Vernon
Harman, Rt Hon Ms Harriet


Coleman, Iain
Harvey, Nick


Colman, Tony
Heal, Mrs Sylvia


Cooper, Yvette
Heath, David (Somerton & Frome)


Corston, Ms Jean
Henderson, Ivan (Harwich)


Cotter, Brian
Heppell, John


Cousins, Jim
Hesford, Stephen





Hewitt, Ms Patricia
Pearson, Ian


Hill, Keith
Perham, Ms Linda


Hoey, Kate
Pickthall, Colin


Hope, Phil
Pike, Peter L


Howarth, Alan (Newport E)
Plaskitt, James


Hughes, Ms Beverley (Stretford)
Pollard, Kerry


Hughes, Kevin (Doncaster N)
Pond, Chris


Hurst, Alan
Pope, Greg


Hutton, John
Pound, Stephen


Iddon, Dr Brian
Powell, Sir Raymond


Ingram, Adam
Prentice, Ms Bridget (Lewisham E)


Jackson, Ms Glenda (Hampstead)
Prentice, Gordon (Pendle)


Jackson, Helen (Hillsborough)
Primarolo, Dawn


Johnson, Alan (Hull W & Hessle)
Prosser, Gwyn


Johnson, Miss Melanie (Welwyn Hatfield)
Quin, Ms Joyce



Radice, Giles


Jones, Mrs Fiona (Newark)
Reed, Andrew (Loughborough)


Keeble, Ms Sally
Reid, Dr John (Hamilton N)


Keen, Alan (Feltham & Heston)
Rendel, David


Keen, Ann (Brentford & Isleworth)
Rooker, Jeff


Kelly, Ms Ruth
Russell, Bob (Colchester)


Kennedy, Jane (Wavertree)
Salter, Martin


Khabra, Piara S
Sanders, Adrian


King, Andy (Rugby & Kenilworth)
Savidge, Malcolm


King, Ms Oona (Bethnal Green)
Sawford, Phil


Ladyman, Dr Stephen
Sedgemore, Brian


Laxton, Bob
Shaw, Jonathan


Lepper, David
Sheldon, Rt Hon Robert


Levitt, Tom
Smith, Rt Hon Andrew (Oxford E)


Lewis, Ivan (Bury S)
Smith, Angela (Basildon)


Liddell, Mrs Helen
Smith, John (Glamorgan)


Linton, Martin
Soley, Clive


Livingstone, Ken
Spellar, John


Lock, David
Starkey, Dr Phyllis


McAvoy, Thomas
Stewart, David (Inverness E)


McCafferty, Ms Chris
Stewart, Ian (Eccles)


McDonagh, Siobhain
Stinchcombe, Paul


Macdonald, Calum
Stoate, Dr Howard


McDonnell, John
Stuart, Ms Gisela


McGrady, Eddie
Taylor, Rt Hon Mrs Ann (Dewsbury)


McIsaac, Shona



Mackinlay, Andrew
Timms, Stephen


McNulty, Tony
Tipping, Paddy


MacShane, Denis
Todd, Mark


Mactaggart, Fiona
Turner, Dr Desmond (Kemptown)


McWalter, Tony
Vaz, Keith


Mallaber, Judy
Vis, Dr Rudi


Marshall, Jim (Leicester S)
Wallace, James


Marshall-Andrews, Robert
Walley, Ms Joan


Meale, Alan
Ward, Ms Claire


Michael, Alun
White, Brian


Milburn, Alan
Wicks, Malcolm


Miller, Andrew
Wise, Audrey


Moffatt, Laura
Wood, Mike


Moore, Michael
Worthington, Tony


Moran, Ms Margaret
Wright, Anthony D (Gt Yarmouth)


Morley, Elliot
Wright, Dr Tony (Cannock)


Morris, Ms Estelle (B'ham Yardley)
Wyatt, Derek


Mudie, George



Naysmith, Dr Doug
Tellers for the Ayes: 


O'Brien, Mike (N Warks)
Mr. Jon Owen Jones and


Olner, Bill
Mr. Clive Betts. 




NOES


Ainsworth, Peter (E Surrey)
Bruce, Ian (S Dorset)


Arbuthnot, James
Burns, Simon


Atkinson, David (Bour'mth E)
Chapman, Sir Sydney (Chipping Barnet)


Atkinson, Peter (Hexham)



Bercow, John
Clappison, James


Beresford, Sir Paul
Clark, Rt Hon Alan (Kensington)


Body, Sir Richard
Clark, Dr Michael (Rayleigh)


Boswell, Tim
Collins, Tim


Bottomley, Peter (Worthing W)
Colvin, Michael


Brady, Graham
Cran, James


Brazier, Julian
Davis, Rt Hon David (Haltemprice)


Browning, Mrs Angela
Day, Stephen






Duncan, Alan
Maclean, Rt Hon David


Duncan Smith, Iain
McLoughlin, Patrick


Emery, Rt Hon Sir Peter
Malins, Humfrey


Evans, Nigel
Maples, John


Faber, David
Mates, Michael


Fallon, Michael
Maude, Rt Hon Francis


Flight, Howard
Mawhinney, Rt Hon Sir Brian


Forth, Rt Hon Eric
May, Mrs Theresa


Fox, Dr Liam
Moss, Malcolm


Gale, Roger
Nicholls, Patrick


Garnier, Edward
Norman, Archie


Gibb, Nick
Ottaway, Richard


Gill, Christopher
Paice, James


Gillan, Mrs Cheryl
Paterson, Owen


Goodlad, Rt Hon Sir Alastair
Pickles, Eric


Gorman, Mrs Teresa
Prior, David


Green, Damian
Randall, John


Greenway, John
Robathan, Andrew


Grieve, Dominic
Robertson, Laurence (Tewk'b'ry)


Hamilton, Rt Hon Sir Archie
Roe, Mrs Marion (Broxbourne)


Hammond, Philip
Rowe, Andrew (Faversham)


Hawkins, Nick
Ruffley, David



St Aubyn, Nick


Hayes, John
Simpson, Keith (Mid-Norfolk)


Heald, Oliver
Spelman, Mrs Caroline


Heathcoat-Amory, Rt Hon David
Spring, Richard


Horam, John
Steen, Anthony


Howarth, Gerald (Aldershot)
Swayne, Desmond


Hunter, Andrew
Syms, Robert


Jack, Rt Hon Michael
Taylor, Ian(Esher & Walton)


Jackson, Robert (Wantage)
Taylor, John M (Solihull)


Jenkin, Bernard
Taylor, Sir Teddy


Key, Robert
Thompson, William


King, Rt Hon Tom (Bridgwater)
Townend, John


Kirkbride, Miss Julie
Tredinnick, David


Laing, Mrs Eleanor
Tyrie, Andrew


Lait, Mrs Jacqui
VValter, Robert


Lansley, Andrew
Waterson, Nigel


Leigh, Edward
Wilkinson, John


Letwin, Oliver
Willetts, David


Lewis, Dr Julian (New Forest E)
Wilshire, David


Lilley, Rt Hon Peter
Winterton, Mrs Ann (Congleton)


Lloyd, Rt Hon Sir Peter (Fareham)
Winterton, Nicholas (Macclesfield)


Loughton, Tim
Woodward, Shaun


Luff, Peter
Young, Rt Hon Sir George


Lyell, Rt Hon Sir Nicholas



MacGregor, Rt Hon John
Tellers for the Noes:


McIntosh, Miss Anne
Mr. John Whittingdale and


MacKay, Andrew
Sir David Madel.

Question accordingly agreed to.

Bill read the Third time, and passed.

Racism (Armed Forces)

Motion made, and Question proposed, That this House do now adjourn.—[Jane Kennedy.]

Ms Diane Abbott: In the past few days, we have read in the newspapers of a particularly sad case of a black marine, Mark Parchment, who was subjected to the most horrifying racial abuse and violence in the marines.
Among other things, he was subjected to a special initiation for "niggers", which involved being soaked with a bucket of urine, attacked and having his genitals shaved. He was made to carry a spear on parade at all times and he was routinely taunted and assaulted.
Such episodes of racial abuse and violence in the armed forces are peculiarly tragic because in all cases, they occur with young men who have more than the normal sense of patriotism and of belonging to Britain. It seems peculiarly tragic that young men who really believe that they are British and want to serve their country are being treated in that way. Sadly, the Mark Parchment case is not the only one; it is but one of a series of sad cases to which I wish to draw the attention of the House tonight.
Black and Asian involvement in the armed forces is not new. The black and Asian peoples have had a relationship with the British armed forces going back to the 18th century. During the French revolutionary wars, locally recruited black regiments were first raised in the West Indies. In 1914–18, the Indian army served with distinction on the western front, and by the time of the 1939-45 war it had grown to 2.5 million men.
Thousands of West Indians—as many as 8,000—served with some distinction in the Royal Air Force. Along with other black Britons of my generation, I am often saddened that when this country remembers those who fought and died in the second world war, the contribution of West Indians and Asians is sometimes forgotten. Those people came and fought and died for this country, because they believed that they were citizens of the empire, serving king and country. It is important to remember their contribution.
Sadly, despite that history of centuries of patriotism and commitment to this country and its armed forces, the Army has a history of institutional racism and of operating quotas and exclusions. As late as 1961, the War Office had a 2 per cent. quota on black recruiting; and as late as 1964, it formally banned black and Asian soldiers from the Guards, the Household Cavalry, Scottish regiments and other supporting organisations, including the military police. In 1967, the Army was still operating a formal quota.
In 1989, across the Atlantic in the United States, the Americans appointed General Colin Powell, the child of West Indian immigrants, as head of their joint chiefs of staff. No one, even Conservative Members, who are quick to talk of tokenism and positive discrimination, would argue that General Colin Powell did not serve his country with distinction.
What were the British armed forces doing during that period? Their progress towards even the basics of racial equality was painfully slow. It is important to remind the House that the Commission for Racial Equality first took


up with the military the issue of racism in the armed forces 17 years ago. Throughout the 1980s and 1990s, the British armed forces have spent their time in denial of the problem.
As late as 1990, the then Under-Secretary, Lord Arran, was saying that the armed services had done all that they could to stamp out racism. Tell that to Richard Stokes, who was desperately proud in 1990 to be the first black man to join the Household Cavalry in its entire history: a history, until the 1960s, of a formal ban on black men. He was driven out by hate mail, racial abuse and violence.
Tell that to Jacob Malcolm, who in 1991 was barred from the Household Cavalry because of his colour. Tell it to Stephen Anderson, another black man, who in 1991 was awarded damages for years of racial abuse. Tell it to Mark Campbell, who was the first black man in the Guards. In 1994, he was driven out by the taunts of "nigger", the abuse, the violence and the bed soaked in human urine.
In 1994 again, Geoffrey McKay was awarded damages by the armed forces. He was one of the brightest recruits in basic training, but on his very first parade his sergeant said to the rest of the assembled troops, "We've got a nigger in the troop, lads." Inevitably, like the others I have mentioned, he was driven out by abuse and violence. Eventually, the Army had to pay damages. With such a history of violence, abuse and racism, it is no surprise that two thirds of black and Asian young people—even those who have joined service cadet corps—believe that there is racism in the armed forces.
Today, black and Asian candidates are a third less successful than white candidates. That is a curious statistic. Only 1 per cent. of all black and Asian people are in the armed forces, compared with 5 per cent. in the civil service and 6 per cent. in the population as a whole. Only a handful of black and Asian people are above the rank of colonel. It seems to me very sad that the armed forces have continued to deny the existence of racism in the services and have had to be painfully dragged into the 20th century under the threat of a formal investigation by the CRE.
In the autumn last year, the armed forces launched a big initiative to recruit more ethnic minorities, bring some of their personnel practices up to modern-day standards and implement some measure of ethnic monitoring. It is now important that the Government monitor that process very carefully. It has taken the armed forces 17 years to get to such a stage. We hear all the time about the difficulties of recruiting suitable people to the services, yet, despite a potential pool of recruits in our big cities and communities, black and Asian young men and women are so painfully under-represented in the armed forces.
I am talking about people such as Richard Stokes who, as I said, was the first black man to join the Household Cavalry. I am talking about people such as Geoffrey McKay—and Solomon Raza, who was abused and beaten on a daily basis because his father was a Pakistani. Eventually, one of the beatings put him in hospital with a ruptured kidney and he had to leave the service. Many bright, idealistic young black and Asian men had to be terrorised, abused and brutalised before the armed services reached the standards of basic personnel practice, number-taking and monitoring that we find in any modern business.
Black and Asian people in the Indian subcontinent, Africa and the Caribbean have a history of loyalty to the British Crown which goes back centuries. They want to serve their country, but they are being kept out—I believe—partly through fear following well-documented cases of abuse and maltreatment. The black and Asian community and the wider community want not just policies on paper, a verbal commitment and lip service to be paid to the issue from Ministers and the armed forces, but real commitment, and a line drawn beneath the history of the issue. They want the armed forces to reach out to young black and Asian people to say, "You are welcome, and once you are in the services, you will be treated as equals." Then, the brutality and humiliation suffered by the Richard Stokes, Mark Campbells, Stephen Andersons, Geoffrey McKays, Solomon Razas and Mark Parchments of the world will not have been in vain.

The Minister for the Armed Forces (Dr. John Reid): I thank my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott) for securing this debate. It provides me with an opportunity to reiterate clearly the Government's commitment to encouraging racial equality in the armed forces. In a vignette of the history of the British armed forces, she referred to the honourable, in many cases glorious, role of comrades in arms in the British Army who came from Asia and Africa. She did well to remind us of that.
In supporting that testimony, I wish to add a personal note. My father lost his oldest and youngest brothers in the second world war in what was probably the most glorious hours of the British armed forces when they stood alone against the most poisonous regime ever to emanate from Europe and possibly the globe—the Nazi regime. The poison at the centre of that regime was racism. The eradication of any element of racism inside our armed forces is compelled not only by the history of the black and Asian community but by the history of the whole of the British armed forces and the sacrifices that they have made.
The Government's commitment stems as much from what will be good for the operational effectiveness of the armed forces as from the inherent laudability of the ideal. Armed forces that better represent the society that they exist to defend will be better able to meet the challenges of the 21st century.
Over many years, the armed forces have not enjoyed a good reputation among members of ethnic minority communities. I understand why that has been so. But I, the Secretary of State for Defence and the armed forces do not accept that that perception or experience of reality should be allowed to continue. There have been, as we have heard from my hon. Friend, a number of highly publicised instances across all three services of unacceptable behaviour towards non-white personnel. Over the years, such events, however isolated they may be as a proportion of the personnel in the armed forces, have done immense harm to the image of the armed forces among the black and Asian communities. They ensured that we face an uphill struggle in persuading those from ethnic minority families that they can have a worthwhile career in the services. Although there are few such incidents, that in no way diminishes their seriousness. One act of racism proven to have taken place in the British armed forces is too many.
Hon. Members will recall the severe criticisms mentioned by my hon. Friend made by the Commission for Racial Equality, which conducted a formal investigation into the Household Cavalry in 1995. These related not just to the Household Cavalry but to some common aspects of service personnel policy. That critique was followed by a report in 1997 by the Office for Public Management, an independent consultancy, into service and civilian ethnic minority recruiting initiatives, which called for greater commitment and leadership at all levels to the goal of equal opportunities. The Ministry of Defence and the services were challenged to do more to embrace greater diversity and to make greater efforts to create armed forces which better reflected the ethnic diversity of the United Kingdom.
I have been frank on the history and I want to be frank about the present and contemporary efforts. First, to their credit, the services have been prepared publicly to face up to these trenchant criticisms and to recognise the problems. Recognition through that self-criticism is the first and necessary step in confronting and solving the problems to which my hon. Friend referred.
I mention those criticisms because they are an important backcloth against which to consider the position today. However, I do so on the basis that increasing the currently inadequate level of ethnic minority representation in the armed forces is good, not only in its own terms, although it is; nor is it only a matter of correctness—political, social, moral or otherwise—although it is morally and socially justified; but because, in the interests of effectiveness throughout the armed forces, it is vital that we recruit people who represent the widest possible pool of talent in our community.
We want the best for the British armed forces, based on merit, not on background, skin colour, religion or creed. To neglect the 7 per cent. of the population who are of ethnic minority origin would be to ignore a valuable seam of potential recruits. That is a seam that we cannot afford to ignore, for our own sake and for the many reasons I mentioned.

Ms Abbott: It is perfectly clear that Ministers are sincere in what they say. I am even prepared to believe that the senior levels of the armed forces are equally sincere. However, from my experience of working and managing in other spheres of life, I know that it is one thing to get the top management to say the right things, but it is another to make sure that correct practice permeates all the way down through an organisation.
We hear about cases of quite unacceptable abuse and violence, but we never hear of anybody being disciplined for perpetrating these actions against fellow soldiers. Until members of the armed forces know that they can be disciplined for committing acts of gross racist abuse and violence, those practices will continue. The Office for Public Management found that officers saw nothing wrong in calling people "coon" and "nigger" and came out with extraordinary stereotypes, such as the notion that black people cannot fight or that they do not like water.
It is one thing to talk the talk, but what we require of the armed services is that they walk the walk and implement these measures all the way down to the bottom.

Dr. Reid: I thank my hon. Friend for the several points which she raises. Her first point was that words were not sufficient—we need actions. I agree entirely and, apart from expressing our commitment, the Government, Defence Ministers and service chiefs want to examine practical ways in which to implement those policies on the ground—walking the walk, as my hon. Friend puts it, rather than talking the talk. I shall talk about that point later.
My hon. Friend's second point was that she accepts—I am glad that she does—the sincerity of Ministers and service chiefs in this respect, but that that is not sufficient in any organisation. Although not sufficient in any organisation, it is more useful in the armed forces, where the chain of command ensures that subordinate command structures carry out orders to a greater extent than could be achieved in many other organisations. That is in the nature of the armed forces.
Nevertheless, the service chiefs and I are completely in accord with my hon. Friend in the realisation that changing the ethos, culture and educational programme of personnel at all levels of the armed forces is essential. I say that with all due respect to generals, admirals and the hierarchy of all the services, but I have no doubt that, in many ways—operationally and culturally—the dynamo of the British armed forces is often found at the level of sergeants, warrant officers, corporals, and so on. Just as that pertains to our effectiveness as a fighting force, so it does to our effectiveness in changing the culture. I give credit to service chiefs, although their commitment is not a sufficient condition to achieve a solution to the problem.
I mentioned the criticisms earlier, because that was the first step in beginning to solve the problems. A vigorous implementation of policies designed to allow and encourage the recruitment of young men and women from the ethnic minorities is good for the forces, good for the defence of the country and good in terms of the numbers in our armed forces. It is also good because it offers the opportunity to able and talented young people to seek a pathway to progress through a system that offers promotion based on merit and ability, not on background. My hon. Friend has highlighted that change, which benefits all sections of the community.
Since coming to office, we have made plain our unequivocal commitment to stamping out racism. Let me spell that out again to anyone who may be listening to the debate. There is no place whatsoever for racial discrimination within the British armed forces. It will not be tolerated. I can assure my hon. Friend that that commitment is shared by the service chiefs, and is now well understood.
That is also made crystal clear to all personnel serving in the armed forces. We are trying hard to ensure that it is also made clear to those who might be considering applying to join either the Royal Navy, Army, or Royal Air Force, because it will be self-evident to everyone in the House that we recruit not in a vacuum, but from society. Many of the problems mentioned by my hon. Friend are prolific in society, particularly in some of the areas from which many of our recruits are drawn.
Our starting point is that, if we are to attract and retain sufficient young men and women of the right calibre to serve in the armed forces, progression through the system must be based on merit alone, without reference to colour, race, gender or religion, and without fear of harassment or bullying.
On the practical measures which have been taken, all three services have either issued or revised their equal opportunity policies and directives. They leave all personnel, of whatever rank, absolutely clear on where their personal responsibilities lie. The Government are working with the service chiefs to build a climate within the armed forces that ensures that all personnel are free from any form of harassment—racial, sexual or religious.
It is also important for service chiefs to continue to underline publicly their personnel commitment to that cause. In my view, that is more important than leaving it just to politicians. I am particularly grateful to the service chiefs for the manner in which they have done that since the Labour party took office. As my hon. Friend has said, the Army's Chief of General Staff, Sir Roger Wheeler, did just that in October, when he relaunched the Army's equal opportunities strategy. He did so from a platform in a room packed with journalists and others who represent media interests. He did it without the presence of any Ministers or a display of political correctness. Sir Roger, like the other chiefs of staff, recognises that such a strategy is vital for the armed forces.
On that occasion, Sir Roger quite rightly said:
We must also seek to change the attitudes that affect behaviour".
I also congratulate the Royal Air Force and the Second Sea Lord, Admiral Sir John Brigstocke, who also made clear his public commitment to equal opportunities at the British diversity award ceremony in December. My hon. Friend referred to the problems encountered in the Navy, but, to its eternal credit, it was shortlisted for one of the equal opportunities awards to be given at that ceremony. We should recognise the good that is being done, as well as some of the problems.

Ms Abbott: rose—

Dr. Reid: I shall give way in a moment, but there is not much time left, and I know that my hon. Friend wants me to respond in practical terms. I should therefore like to list what we are doing.
Before I do so, I should like to note that Admiral Sir John Brigstocke made clear his public commitment to equal opportunities at the British diversity awards when he said that the Navy
would not turn a blind eye to discrimination in any form.
Such high-level commitments are important, because, ultimately, it is only by influencing attitudes that the true breakthrough will be made.
My hon. Friend has asked me to detail the practical policies in hand. Let us turn from rhetoric to reality, from

talking the talk to walking the walk, as my hon. Friend said. We are determined that the quality of our monitoring during recruitment, and subsequently in service, is improved. We are looking at, and want to look more closely at, performance across ethnic group and gender in both recruitment and subsequent career progression. We have made it clear previously that we wish to ensure the widest possible array and talent. If we failed to do so by monitoring, we would pass up a great opportunity to the detriment of the long-term efficiency of the armed forces.

Ms Abbott: Some regiments, such as the Guards and the Household Cavalry, have deliberately excluded black people. Will my hon. Friend introduce cap badge monitoring—monitoring by regiment?

Dr. Reid: Would my hon. Friend do me the courtesy of allowing me to answer the question? She mentioned the Household Cavalry three times. I am delighted to tell the House that, last week, the Major-General commanding the Household Division was in Brixton, mixing with people to find practical ways to take forward one of the initiatives that I shall mention.
Of course the figures will be studied in terms of targets across cap badges. There are no get-out clauses. There is no way out. We want to do that; we are not trying to escape from it.
We realise that we need to work hard to overcome the barriers among some ethnic minorities about careers in the armed forces, so the initiatives that we have taken in Sandwell, and in Newham in London, are crucial. We are working closely in those two boroughs—not using rhetoric, but working with local councillors and leaders of education and the ethnic minorities, and we are trying to find practical ways, resulting from their partnership, to build on the initial work done. We are also looking to involve local cultural leaders and the racial equality councils in that work, because we need to sell the message nationwide and locally—at the highest level and in the streets and on the ground.
I mentioned local visits by senior commanders such as the Major-General commanding the Household Division. Our goal is simple: we want the armed forces better to reflect the ethnic balance of society. I have said that publicly. I have said it to the Commission for Racial Equality and I think that it will accord the new Government and the service chiefs appreciation for the attempts that we have made.
We want it to be widely known that we resolutely wish the number of black and Asian personnel to increase during the next few years. We are providing role models. We have established ethnic minority recruiting teams. We have placed increased emphasis on targeting the gatekeepers who are influential in determining the career choices of young people, and we are seeking to make the best possible use of the ethnic media to communicate the message so that the services recruit and welcome applications.
Our priority is clear. I was able to announce to the House earlier today, in answer to a parliamentary question, that I have established targets for recruitment from ethnic minorities of 2 per cent. for next year, of 3 per cent. for the following year, of 4 per cent. for the

following year and of 5 per cent. for the following year, throughout the British armed forces. Those targets are not ambitious. They will put into practice our resolution to—

The motion having been made after Ten o'clock, and the debate having continued for half an hour, MR. DEPUTY SPEAKER adjourned the House without Question put, pursuant to the Standing Order.

Adjourned at eighteen minutes to Eleven o'clock.